| Federal Discount Rate |
| By Bankrate.com |
|
 |
| Prime rate, fed funds, COFI |
|
|
|
|
|
This week |
Month ago |
Year ago |
|
Federal Discount Rate
|
1.25 |
1.75 |
5.00 |
|
What
it means: The interest rate at which an eligible financial
institution may borrow funds directly from a Federal Reserve bank.
Banks whose reserves dip below the reserve requirement set by the
Federal Reserve's board of governors use that money to correct their
shortage. The board of directors of each reserve bank sets the discount
rate every 14 days. It's considered the last resort for banks, which
usually borrow from each other.
How
it's used: The Fed uses the discount rate to control the supply
of available funds, which in turn influences inflation and overall
interest rates. The more money available, the more likely inflation
will occur. Raising the rate makes it more expensive to borrow from
the Fed. That lowers the supply of available money, which increases
the short-term interest rates. Lowering the rate has the opposite
effect, bringing short-term interest rates down.
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