Prime rate ; Prime rate What is the prime rate? Prime rate is the interest rate that banks charge their preferred customers, or those with the highest credit ratings. It is used to determine borrowing costs on many short-term loan products. The prime rate index can be volatile or remain constant for months on end, depending on the economic climate. Deeper definition The prime interest rate is what banks charge their most creditworthy customers, because they know those customers are the least likely to default.