In general, the prime rate runs approximately 300 basis point

Basis point

A basis point is a unit equal to 1/100 of a percentage point or one part per ten thousand...

s (or 3 percent) above the federal funds rate

Federal funds rate

In the United States, the federal funds rate is the interest rate at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis. Institutions with surplus balances in their accounts lend...

. The Federal Open Market Committee

Federal Open Market Committee

The Federal Open Market Committee , a committee within the Federal Reserve System, is charged under United States law with overseeing the nation's open market operations . It is the Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money...

 (FOMC) meets eight times per year wherein they set a target for the federal funds rate. Other rates, including the Prime Rate, derive from this base rate.

The most commonly recognized prime rate index is the Wall Street Journal Prime Rate

Wall Street Journal prime rate

The Wall Street Journal Prime Rate is defined by The Wall Street Journal as "The base rate on corporate loans posted by at least 70% of the 10 largest U.S. banks." It is not the 'best' rate offered by banks. It should not be confused with the federal funds rate set by the Federal Reserve,...

 (WSJ Prime Rate), published in the Wall Street Journal. Unlike other indexed rates, the prime rate does not change on a regular basis; rather, it changes whenever banks need to alter the rates at which borrowers obtain funds. The WSJ defines the prime rate as "The base rate on corporate loans posted by at least 75% of the nation's 30 largest banks." It has been speculated though that this is no longer the real definition, (and that the prime rate is simply the fed funds target rate + 3) because most corporate loans are indexed to LIBOR.

When 23 out of 30 of the United States' largest banks change their prime rate, the WSJ prints a composite prime rate change.

Uses

The Prime Rate is used often as an index in calculating rate changes to adjustable rate mortgages(ARM) and other variable rate short term loans. It is used in the calculation of some private student loans. Many credit card

Credit card

A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...

s with variable interest rates have their rate specified as the prime rate(index) plus a fixed value commonly called the spread.