> Fed Funds Rate vs Prime Rate: What Is the Difference?
> Source: https://interestratedecision.com/explainers/fed-funds-rate-vs-prime-rate/ · Content last changed: 2026-11-12
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The fed funds rate is 3.75%–4.00%; the prime rate, which cards and credit lines use, is 7.00%: 3 points above the top of the Fed's range, by convention. How…

# Fed funds rate vs prime rate: what is the difference?

The federal funds rate is what banks charge each other overnight, set as a target range by the Fed: 3.75%–4.00% now. The prime rate is what banks charge their best borrowers, set by the banks themselves: 7.00% now, which is 3 percentage points above the top of the Fed's range by long-standing convention.

Figures as of Nov 12, 2026, 10:15 AM UTC.

## 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](https://interestratedecision.com/explainers/does-the-fed-set-mortgage-rates/) and [do Fed cuts lower credit card rates](https://interestratedecision.com/explainers/do-fed-rate-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](https://interestratedecision.com/fed/rate-cuts/).

## 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?](https://interestratedecision.com/explainers/does-the-fed-set-mortgage-rates/)
-   [Do Fed rate cuts lower credit card rates?](https://interestratedecision.com/explainers/do-fed-rate-cuts-lower-credit-card-rates/)
-   [What happens when the Fed raises or cuts rates](https://interestratedecision.com/what-happens-when-the-fed-raises-or-cuts-rates/)
-   [The rate cut calculator](https://interestratedecision.com/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.

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