Prime Rate The rate is the rate at which banks impose on their top important customers, those with the strongest credit ratings. Many short-term lending products use it to determine borrowing costs. Depending on the economic conditions, the prime rate index might be volatile or stable for months (Hagen, 2019). Banks utilize the federal funds rate to establish their prime rates. The prime rate is normally around 3% more than the federal reserve rate. As a result, if the federal reserve is 2%, the prime rate is 5%. Every bank has established its own rates, which might be higher or lower than 3% than the federal reserve.