The prime rate is the interest rate that banks charge their most creditworthy customers. It's set by the Federal Reserve and serves as a baseline for many other interest rates, like those on credit cards and home equity lines of credit. When the prime rate changes, other rates often follow.
The Federal Reserve sets the prime rate at 7%. A bank might offer a credit card with an interest rate of prime plus 10%, which would be 17%. If the Federal Reserve raises the prime rate to 7.5%, the credit card rate typically increases to 17.5%.
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