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What’s the prime rate?
THE MOTLEY FOOL
Ask the Fool
Published: October 21, 2025
Q: What's the prime rate? -- J.F., Green Bay, Wisconsin
A: It's the interest rate that most banks charge their lowest-risk commercial customers -- typically around 3 percentage points higher than the federal funds rate, the rate at which banks lend money to each other.
Every bank sets its own prime rate, though many use the Wall Street Journal Prime Rate, which is based on the rates used by many of the biggest United States banks. The prime rate is important because it's used as a base rate for many other interest rates, such as those charged for mortgages, home equity loans, credit cards and small business loans. Many credit cards, for instance, set their interest rates by taking the current prime rate and adding a certain amount based on the perceived risk to the lender. The Wall Street Journal Prime Rate was recently 7.5%, down from 8.5% a year earlier.
Q: Should I avoid companies with growing losses instead of growing profits? -- N.L., Exeter, New Hampshire
A: Rising profits are certainly more desirable than increasing losses. But for best results with any company that interests you, do some digging to see what's really happening. One company might be posting losses because of products not selling, a huge accounting scandal or formidable competition. Another company might be selling its products like hotcakes, but posting losses because it's investing a lot to further its growth, perhaps by hiring more workers, spending more on advertising or acquiring other companies or technologies. The latter company could just slow down spending on growth at some point and become profitable then -- it's less of a risk for investors.
Fool's School
The F.I.R.E. Strategy
As you plan for retirement, you might want to learn more about the F.I.R.E. movement. The acronym stands for "Financial Independence, Retire Early," and it's become a movement of people who save and invest aggressively to retire early -- often very early, such as in their 30s or 40s.
F.I.R.E. practitioners will typically calculate their F.I.R.E. number, which is often their annual expenses multiplied by 25. Then they'll plan to withdraw around 3% to 4% of their nest egg each year in retirement (adjusting each withdrawal for inflation). So someone who spends around $60,000 per year would aim to amass a $1.5 million nest egg. And in their first year of retirement, they'd withdraw around $45,000 to $60,000 from it.
All that is much easier said than done, which is why F.I.R.E. folks often manage their money in an extreme way, living very, very frugally; some save at least 50% of their income. A two-income household might live frugally on one earner's income, saving all of the other. Other tactics can include living without a car (or owning only one car), rarely dining out and renting or owning a much smaller home than they can afford. They may also take on second jobs or side gigs.
There are some variations of the F.I.R.E. approach to know about: The Fat F.I.R.E. variation is for those who want to live large in retirement and therefore need to build extra-large retirement nest eggs. The Lean F.I.R.E. variation is the opposite, with practitioners willing to live a minimalist lifestyle. The Barista F.I.R.E. variation features an early semiretirement coupled with a part-time job.
There are some risks and cautions to be aware of: Withdrawing around 4% each year (with annual inflation adjustments) could lead you to run out of money too soon. And working fewer than 35 years will shrink future Social Security benefits. Also, being young and fully retired means you'll have to arrange your own health insurance, and you can face early withdrawal penalties if you take money out of retirement accounts before age 59 1/2.
My Smartest Investment
A Job with Great Benefits
My smartest financial move was simply working for Mastercard. -- E.D., via email
The Fool responds: You're absolutely right! We often think of smart financial moves in terms of great investments, but working for a company that pays you well and offers great benefits is also a financially savvy move. We don't know exactly when you worked for Mastercard, but a glance at its website today reveals employee benefits such as a 10%-of-base-pay matching retirement contribution (with workers vested on day one), 16 weeks of fully paid parental leave, financial assistance with adoption and fertility treatments, five paid volunteer days a year, access to fitness centers (or reimbursement for them) and flexible work schedules -- among other things.
When job-hunting -- or thinking of job-hopping -- it's smart to think of which benefits are most important to you and then to compare those offered at companies you're considering. A quick online search will turn up lists of great companies to work for; you can research benefits, salaries and/or employee satisfaction, among other things, at sites such as Indeed.com, Glassdoor.com and GreatPlaceToWork.com. Companies offering good pay and strong financial benefits can help you build a nest egg faster.
(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)
Foolish Trivia
Name That Company
I trace my roots back to 1930, when my founder opened a "Food Store" in Winter Haven, Florida. A decade later, he built a "state-of-the-art food palace of marble, glass and stucco." By 1950, I had 20 locations; I soon debuted private-label items. In 1986, I opened my 300th store. Today, I'm America's largest employee-owned company (so I'm not publicly traded on the stock market), with more than 260,000 people working at more than 1,400 stores across the South. I raked in nearly $60 billion in 2024. I've been named a great place to work many times. Who am I?
Last Week's Trivia Answer
I trace my roots back to 1894, when my founder launched the Lancaster Caramel Company and set me up as a chocolate-making subsidiary. I debuted milk chocolate bars in 1900, and seven years later, I introduced osculations (under a different name). In 1909, my founder started a school (and home) for orphaned boys. I supplied World War II soldiers with field rations. Today, with a recent market value above $36 billion, I'm headquartered in an area that used to be a village called Derry Church. My brands include Reese's, Twizzlers, Heath, Almond Joy, Jolly Rancher and Skinny Pop. Who am I? (Answer: Hershey)
The Motley Fool Take
Consider Buying the Dip
The Trade Desk (Nasdaq: TTD) had its worst day as a public company on Friday, Aug. 8, with shares dropping nearly 40% as investors processed second-quarter financial results, a new incoming CFO and cautious third-quarter guidance due to tariff uncertainty. Multiple analysts think the market overreacted, though. The Trade Desk recently had a median target price of $75 per share, implying 43% upside from its recent share price of $52.
The Trade Desk operates a major independent cloud-based, artificial-intelligence-powered platform that helps advertisers plan campaigns and optimize their spending, getting the right ads in front of the right eyeballs. Its independence -- meaning it does not own media content that might bias ad spending on its platform -- distinguishes it from larger competitors such as Alphabet's Google, Meta Platforms and Amazon.
The company has consistently taken market share from rivals in digital advertising, and CEO Jeff Green believes that trend will continue for the foreseeable future.
Despite the sharp decline in the stock, The Trade Desk actually reported reasonably good second-quarter financial results that beat estimates on the top line -- revenue rose 19% year over year, to $694 million.
Patient and risk-tolerant long-term investors might want to take a closer look at The Trade Desk. (The Motley Fool owns shares of and recommends The Trade Desk.)
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