text: what is variable interest rate?   variable interest rate: a variable interest rate is based on fluctuating rates in the banking system, such as the prime rate. for example, if on january 1, the prime rate was 6 percent and your credit card's variable rate formula was the prime rate plus 9.9 percent, your interest rate would be 15.9 percent (see prime rate).  prime rate: the interest rate banks charge for loans to their biggest and highest-rated customers. the prime rate changes based on the demand for money and the rate the u.s. federal reserve bank charges to its member banks. it is used as a major economic indicator.