The Federal Reserve (commonly called, “The Fed”) meets monthly to determine what’s called Prime Rate. This is a flat rate, which dictates the interest rate lenders charge consumers. When it changes, it can directly impact your finances and wallet when both borrowing and saving money. On the borrowing side, it can affect your loan interest rates – which impacts your total payment. Simply put, when the Prime Rate is higher, you’ll pay more interest, when it’s lower, you’ll pay less. On the savings side, when Prime Rate is higher, typically credit unions and banks will pay you more interest on your deposits, like Certificates (commonly known as CDs) and Money Market Accounts.
Now we can get into the two most common Prime Rate change questions:
1. When and why does it change?
The Fed meets monthly and determines if the rate will change or remain the same. They control this rate as a means to better manage inflation. A lower rate suggests that the Fed is trying to stimulate the economy by encouraging borrowing and spending when factors point to an economic slowdown, while a higher rate generally indicates that the Fed is trying to cool down the economy during prosperous economic growth.
Still unclear how exactly the Prime Rate change relates to you? Let us simplify how it affects the average American and give you insights into what it may mean to you and your finances. Click here to learn more.
2. Will Prime Rate ever reach the historically low numbers from 2020?
If we had a crystal ball, we’d love to predict this for you. However, as you know, 2020 was an unprecedented year faced with economic and cultural challenges. Rates were at historic lows, maybe even generational lows, so it’s not likely we’ll see rates that low in the near future. However, the Prime Rate reached its highest point in years in 2025, so now with rates beginning to decrease, borrowing may become more advantageous, and refinancing could begin gaining steam. The best thing you can do for your wallet is to understand the interest you’re paying on loans and credit cards and receiving on savings products.
The Good. The Bad. And the Ugly.
Prime Rate changes can become political, as we’ve seen in 2025. However, the Fed generally operates in a bi-partisan manner and is responsible for maintaining the health of our economy. As we’ve pointed out, there are both advantages and disadvantages associated with any Prime Rate. For consumers, it oftentimes is dependent upon their stage of life and current banking needs. One thing is certain, if you wait long enough, it will change and you’ll have the opportunity to improve your financial position based on your needs.
Hopefully, what Prime Rate means to you is a little bit clearer; if not, rely on us! At KEMBA, we’re committed to helping you understand your financial options, pros, cons, and how you can make the most of your hard-earned money.