What is a prime rate?

The prime rate is that interest which bank charge for their most trusted customers. This customers are big corporations which have a smaller likelihood on defaulting on their payments then an average costumer. The usual borrowers receive a bigger interest because they represent a higher risk. The prime rate is usually determined by the federal funds rate. This rate is the interest what banks charge for each other in overnight money loans. The prime rate is always higher then the federal fund rate and it’s in direct connection with it, if the federal fund rate goes up then the prime rate goes up also if it goes down then the prime rate will also follow that trend. The federal fund rate is mo by the supply and demand and it’s prompted by Open Market Committee. The interest rate is usually three percent higher then the federal one.