Question

What is the prime interest rate? How does the average bank customer fare in regard to the prime interest rate?

Short answer

The prime interest rate is offered by the bank to the customers having the highest credit rating. The interest rate offered to the average customers is 1-2% higher than the prime interest rate.

Step-by-step solution

Meaning of prime interest rate

The prime interest rate is the interest rate offered by the bank to its customer that has the highest credit rating. These rates are lower than the bank’s average interest rate as the chances of default are low in this case.

The interest rate of an average customer in regard to the prime rate

The interest rate charged by the bank of an average customer is 1-2% higher than the prime interest rate offered by the bank. The prime rate is usually offered to large corporations.