Research and Statistics

Prime rate trends over the past decade


Prime rate trends indicate a continued increase through 2006.

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

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.


Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Research and Statistics

Got a tax refund? Then get out of credit card debt!

If you are one of the lucky Americans getting a tax refund this year, instead of buying that new big-screen TV, you may want to pay off card debt instead

See more stories
Credit Card Rate Report
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more