Discount rate
Overview
- For the fees charged to merchants for accepting credit cards, see Discount Rate under Merchant Account.
- For discount rate as a term in investment financing, see Discounted cash flow
The discount rate can mean
- an interest rate a central bankCentral bankA central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
charges depository institutionDepository institutionA depository institution is a financial institution in the United States that is legally allowed to accept monetary deposits from consumers...
s that borrow reservesBank reservesBank reserves are banks' holdings of deposits in accounts with their central bank , plus currency that is physically held in the bank's vault . The central banks of some nations set minimum reserve requirements...
from it, for example for the use of the Federal Reserve's discount windowDiscount windowThe discount window is an instrument of monetary policy that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions...
.
- the same as interest rateInterest rateAn interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
; the term "discount" does not refer to the common meaning of the word, but to the meaning in computations of present valuePresent valuePresent value, also known as present discounted value, is the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk...
, e.g.
