Definition
The interest rate banks charge each other for overnight loans, steered by the Federal Reserve as its main policy lever. When the Fed moves the target range, rates across the economy follow: credit cards and HELOCs almost immediately, savings yields quickly, and mortgage rates loosely.
Why it matters
This one number quietly reprices your financial life in both directions: a hike makes card debt and variable loans more expensive while savings finally pay something, and a cut does the reverse. Knowing which of your rates float with it explains why they change without you doing anything.
Example
After a one-point rise in the target, a borrower's variable 21% card APR becomes about 22% within a billing cycle or two, adding roughly $50 a year per $5,000 of balance, while the same bank lifts its savings yield. Their fixed-rate mortgage does not move at all.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.