the base rateMar 03 '01 Write an essay on this topic.
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The Bottom Line The is the base rate Banks charge for nearly risk-free short term loans.
The Prime Rate is the rate which banks charge to their best, most credit-worthy, customers. While each bank may set their own rate, like airline prices, almost all of the banks follow each other so that their rates are mostly the same. The Wall Street Journal (www.wsj.com) defines the Prime Rate as, "the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks." The banks set the Prime Rate based on their cost to borrow money, which will generally track other interest rates such as the 30-year Treasury and Fed Funds Rate, etc. Generally, the Prime Rate will be at bit above the Corporate AAA Bond Rate and the 30-year Treasury rate. Currently, the Prime Rate is at ~8.5% while the 30-year Treasury is at ~5.37% and the 30 Year Fix Rate Mortgage is at ~6.67%. To look at historical Prime Rates and other rates, go to the Federal Reserve website at: http://www.federalreserve.gov/releases/H15/data.htm Few people can expect borrow money at this rate when the loan isn't secured by significant collateral. Most people will encounter the Prime Rate when their variable rate loan is predicated on the Prime Rate, such as Prime+x%. The contract will usually reference the Prime Rate as published by some major newspaper. The thing one must do is to double check the rate with the referenced Prime Rate. An error is unlikely, but possible especially if your loan get sold. Most credit cards rates tend to be much higher than the Prime Rate, with one notable exception that I'm aware of - the Wachovia Bank Prime Card. Wachovia is known as a very conservative bank that will only accept the best customers. The Prime Card comes with an annual fee, ~$30. Or you can get the Prime+1% card without an annual fee. Also, Providian Bank offer a 5.9% fixed-rate card on purchases. Providian, however, has been accused of unfair banking practices.  |
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