Current Discount Rates

District Primary Credit Rate Secondary Credit Rate Effective Date

Boston 3.00% 3.50% 12-20-2018
New York 3.00% 3.50% 12-20-2018
Philadelphia 3.00% 3.50% 12-20-2018
Cleveland 3.00% 3.50% 12-20-2018
Richmond 3.00% 3.50% 12-20-2018
Atlanta 3.00% 3.50% 12-20-2018
Chicago 3.00% 3.50% 12-20-2018
St. Louis 3.00% 3.50% 12-20-2018
Minneapolis 3.00% 3.50% 12-20-2018
Kansas City 3.00% 3.50% 12-20-2018
Dallas 3.00% 3.50% 12-20-2018
San Francisco 3.00% 3.50% 12-20-2018

The Discount Rate

The discount rate is the interest rate charged to commercial banks and other depository institutions
on loans they receive from their regional Federal Reserve Bank's lending facility--the discount
window. The Federal Reserve Banks offer three discount window programs to depository
institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate. All
discount window loans are fully secured.

Under the primary credit program, loans are extended for a very short term (usually overnight) to
depository institutions in generally sound financial condition. Depository institutions that are not
eligible for primary credit may apply for secondary credit to meet short-term liquidity needs or to
resolve severe financial difficulties. Seasonal credit is extended to relatively small depository
institutions that have recurring intra-year fluctuations in funding needs, such as banks in agricultural
or seasonal resort communities.

The discount rate charged for primary credit (the primary credit rate) is set above the usual level of
short-term market interest rates. (Because primary credit is the Federal Reserve's main discount
window program, the Federal Reserve at times uses the term "discount rate" to mean the primary
credit rate.) The discount rate on secondary credit is above the rate on primary credit. The discount
rate for seasonal credit is an average of selected market rates. Discount rates are established by
each Reserve Bank's board of directors, subject to the review and determination of the Board of
Governors of the Federal Reserve System. The discount rates for the three lending programs are
the same across all Reserve Banks except on days around a change in the rate.
The Three Discount Rates

There are three discount rates:

1. The primary credit rate is the basic interest rate charged to most banks. It's
higher than the fed funds rate. The current discount rate is 3%.
2. The secondary credit rate is a higher rate that's charged to banks that don't
meet the requirements needed to achieve the primary rate. It's 3.5%. It's
typically a half a point higher than the primary credit rate.
3. The seasonal discount rate is for small community banks that need a
temporary boost in funds to meet local borrowing needs. That may include
loans for farmers, students, resorts and other seasonal activities.

Why would banks need to borrow at the Fed's discount window? The Federal
Reserve requires them to have a certain amount of cash on hand each night,
known as thereserve requirement. Banks that lent out too much that day need to
borrow funds overnight to meet the reserve requirement. Usually, they borrow
from each other. 

The Fed provides the discount window as a back up in case they can't get the
funds elsewhere. 

Why does the Fed require a reserve? Partly to maintain solvency, but mostly to
control the amount of money, credit and other forms of capital that banks lend
out. A high reserve requirement means the bank has less money to lend. Since
it's especially hard on small banks (less than less than $12.4 million in deposits),
they are exempted from the requirement. They don't have to worry about using
the discount window at all.

How It Works

The Federal Open Market Committee is the Fed's operations manager. This

committee meets eight times a year. The members vote to change the fed funds
rate when the central bank wants banks to lend either more or less. The Fed's
Board of Governors usually changes the discount rate to remained aligned with
the fed funds rate.

For example, a higher discount rate means it's more expensive for them to
borrow funds, and so they have less cash to lend out. Even if they don't borrow at
the Fed discount window, they find that all the other banks have raised their
lending rates as well. The Fed raises the discount rate when it wants all interest
rates to rise. That's called contractionary monetary policy, and central banks use
it to fight inflation. This reduces the money supply, slows lending, and therefore
slows economic growth.

The opposite is called expansionary monetary policy, and the central banks use it
to stimulate growth. The lowers the discount rate, which means banks have to
lower their interest rates to compete. This increases the money supply, spurs
lending, and boosts economic growth.

The Fed has a wealth of other tools to expand or constrict bank lending. In fact,
its open market operations is a very powerful operation that's not as well known
as the discount rate or fed funds rate. This is when the Fed buys securities from
banks when it wants the rate to fall and sells them when it wants rates to rise. 

To buy securities, for example, it simply removes them from the banks' balance
sheets and replaces them with credit that it has simply created out of thin air.
Since it gives the bank more money to lend, it's willing to lower interest rates just
to put the money to work.