Libor versus Prime Rate

See Also:
LIBOR
Prime Lending Rate
Interest Expense
Interest Rate Swaps
Federal Funds Rate

Libor versus Prime Rate

The London Interbank Offered Rate (Libor) and the US Prime Rate are both benchmark interest rates. Both rates are used as reference rates for various lending and borrowing transactions. (For current and historical rates, see the links below.) To see comparisons of Libor versus prime rate, keep reading.

Libor History – Prime Rate History

Libor originated in London, England, and was established between 1984 and 1985. The US Prime Rate, also called the WSJ Prime Rate, originated in the United States. Historical prime rate data go back as far as 1929. When we study the age of Libor versus prime rate, prime rate is much older than Libor.

Setting Libor and Prime Rate

Libor is an average derived from the rates at which major banks lend to each other in London’s money markets. Whereas, US Prime Rate is typically set at three percentage points above the federal funds rate. Setting Libor is more complicated than setting US Prime Rate.

Fixed Rate, Floating Rate

Libor is a floating rate as it fluctuates continually. US Prime Rate is a fixed rate, which means it typically remains unchanged for extended periods of time. Prime Rate versus Libor: Prime rate is a fixed rate, whereas Libor is a floating rate.

Primary Users of Libor and Prime Rate

Libor is used by banks – it is the interest rate at which banks lend to each other in certain London money markets. (Borrowers, lenders, and investors may use Libor as a reference rate.) Comparatively, US Prime Rate is used by consumers – it is the rate at which banks lend to their best customers. (Borrowers, lenders, and investors may use prime rate as a reference rate.) Libor is used primarily by banks (in theory). Prime is used primarily by consumers.

Libor Benchmark – Benchmark Prime Lending Rate

Libor is a benchmark interest rate used as a reference in lending and borrowing transactions around the globe. (Keep in mind, Libor bank rates are also used as reference rates in various financial derivatives.) Comparatively, US Prime Rate is a benchmark interest rate used as a reference in lending and borrowing transactions in the United States and elsewhere. When we look at Libor versus Prime Rate, we find both rates are benchmark interest rates with wide global usage.

Publication of Libor and Prime Rate

Libor bank rates are published daily at 11:30am GMT by the British Bankers’ Association (bba.org.uk). The US Prime Interest Rate, also called the Wall Street Journal Prime Rate, is published in the Wall Street Journal. Prime Rate versus Libor: Prime interest rate is published by the WSJ whereas Libor is published by the BBA.

Variations of Libor and Prime Rate

Libor is published for 10 currencies and 15 maturities. It also ranges from overnight to one year. In comparison, prime lending rates may vary slightly among individual commercial banks. Libor vs Prime Rate: there are many more official versions of Libor than there are official versions of US Prime Rate.

Wall Street Journal Prime Rate (WSJ Prime Rate)

To see historic US Prime Rates, from 1947 to the present, go to: wsjprimerate.us
If you want to learn prime rate historical data from 1929 to present, then go to: research.stlouisfed.org
To read about current and recent US Prime Rates, as well as other rates, go to: bloomberg.com

Libor Historical Rates and Current Rates

For Libor rates, go to: bba.org.uk, bankrate.com and bloomberg.com.
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