Prime rate trends over the past decade

The prime lending rate, often simply known as prime or prime rate, is the index that most lenders use to price their loans to consumers. Banks and credit card issuers typically use this rate as a way of protecting their bottom line against the ever-fluctuating cost of accessing funds in the capital markets. These lenders generally add an incremental percentage, or "margin," to their rates to generate a profit since the prime rate is usually what they must pay to get the funds.

Compare Reward Credit CardsSince 1996, the overall level of the prime rate is down. However, the rate was fairly stable until January of 2001. In an effort to jump start tepid U.S. economic growth and to head of deflation, then Fed Chairman Alan Greenspan led a fiscal policy involving an unprecedented series of rate cuts over a period of 28 months. During this period the prime rate fell 550 basis points, from 9.5 percent to 4 percent, a rate which had not been seen since April of 1959!

The prime rate stayed at this remarkably low level for a full year, until June of 2004. Since that time the Fed has taken the opposite fiscal approach by steadily increasing rates to their current level of 7.5 percent. Newly minted Fed Chief Ben Bernanke has stated he intends to stay the course in terms of keeping the brakes on the U.S. economy and possible inflationary pressures caused by low cost funds.

Going forward in 2006, the prime rate is projected to keep increasing. Another 25 basis point hike is predicted sometime before the summer months, according to leading economists on Wall Street. But only the movement of leading economic indicators, such as housing starts, employment levels and growth in the money supply is expected to provide the nudge required for the next increase.


Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.

Updated: 03-26-2019