The prime rate (prime) is the interest rate charged by central and often commercial banks to borrowers with the best credit ratings, which are typically large corporate entities. The Federal Reserve sets the federal funds rate, which is the overnight rate at which banks lend to one another in the United States. The federal funds rate is the foundation for the prime rate, and the prime rate is the starting point for most retail bank interest rates, including mortgages, personal loans, and small business loans.
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