What interest rate do banks charge their most creditworthy customers?

The interest rate banks charge their most creditworthy customers is called the prime rate. It is a benchmark lending rate, not a single worldwide rate set by one central authority.

In the United States, banks commonly set their prime rate by adding a margin to the Federal Reserve’s target range for the federal funds rate. The rate is used as a reference for business loans, home-equity credit, credit cards, and other variable-rate borrowing. Customers with stronger credit profiles are more likely to receive pricing near the prime benchmark.

Prime rate is often confused with the federal funds rate. The federal funds rate applies primarily to overnight lending between depository institutions, while prime rate is a bank lending benchmark offered to customers. The discount rate is the rate charged by a Federal Reserve Bank on qualifying loans to financial institutions.

The term also varies by country. Canada publishes a widely used prime rate, while banks in the United States may publish similar but not always identical rates. Modern prime-linked loans can therefore change when central-bank policy changes.