Two rates, one rule
The Fed sets a range a quarter of a point wide. The prime rate is the top of that range plus 3 percentage points. With the Fed at 3.75%–4.00%, the top is 4.00% and prime is 7.00%.
Banks announce prime on their own, so the rule is a habit, not a law. It is the reason credit cards, home equity lines and some small-business loans, which are priced off prime, move when the Fed moves.
Why it matters to a borrower
Loans priced off prime change with the Fed: a card, a home equity line, many variable business loans. Loans priced off long-term bond yields, such as a fixed-rate mortgage, do not follow the Fed directly. See does the Fed set mortgage rates and do Fed cuts lower credit card rates.
The latest move
The Fed's last move was a hike of 25 basis points on Sep 16, 2026. By the rule, prime moved by the same 25 basis points to 7.00%. The full list of Fed moves is on Fed rate cuts since 2008.
In short
Fed funds is the Fed’s rate; prime is the banks’ rate, three points above its top. This is general information, not advice. Check your own loan or card agreement for how and when your rate changes.
More explainers
- Does the Fed set mortgage rates?
- Do Fed rate cuts lower credit card rates?
- What happens when the Fed raises or cuts rates
- The rate cut calculator
Questions
Is the prime rate the same as the fed funds rate?
No. Fed funds is 3.75%–4.00%; prime is 7.00%, three percentage points above the top of the Fed's range by convention.
Who sets the prime rate?
Banks set it themselves. By convention they set it 3 percentage points above the top of the Fed’s target range, and announce a change right after the Fed moves.
What is the federal funds rate?
The rate banks charge each other for overnight loans. The Fed sets a target range for it at each of its eight meetings a year.
What does the fed funds rate affect?
Directly, the cost of overnight lending between banks. Indirectly, prime and everything priced off it, savings rates and, through expectations, longer-term rates.