by 
The Curious Bag
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The prime rate is one of several financial indexes that banks look at to make their interest rates competitive. This rate has a big effect on the overall economy.
Identification
The prime rate refers to the average interest rate that banks give to their most trusted, or "prime" borrowers--usually heavy debtors like corporations, according to Investor Words.
Features
Most people in the financial world look at the Wall Street Journal's prime rate index because they only print new average prime rates when the best banks in America change them.
History
The Federal Reserve Board began keeping track of historical prime rates in the early 1930s, when it hovered around 5 percent.
Function
The prime rate is often used by banks to help determine what rate to charge on mortgages and credit cards.
Effects
The prime rate actually adjusts to changes in the overnight lending rate banks charge each other, called the Federal Funds Rate. You usually add 3 points to the FFR to get the prime rate. Since the prime rate follows the FFR, the government often uses the prime index to adjust the amount of money in the economy.
Source:
CreditorWeb.com; Wsj Prime Rate
MoneyCafe.com; Prime Rate History
Resource:
BankRate.com; Prime rate, fed funds, COFI
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