Whats the difference between the prime rate, fed funds rate, and discount rate?
The Prime Rate: Is the interest rate charged by banks to their most credit worthy customers. The Discount Rate: Is the interest rate charged by the Federal Reserve when banks borrow “overnight” from the Fed. The discount rate is under the direct control of the Fed. The discount rate is always lower than the Federal Funds Rate. The Federal Funds Rate (FFR): Is the interest rate charged by banks when banks borrow “overnight (loans)” from each other (to meet reserve requirements. The funds rate fluctuates according to supply and demand and is not under the direct control of the Fed, but is strongly influenced by the Fed’s actions.
