The discount rate, aka the Fed Funds Rate, is a short term rate that banks charge each other to lend each other money. The discount rate affects the prime rate which affect home equity lines of credit, credit cards, auto loans and the like. Home equity lines of credit and credit cards are based on the prime rate. The prime rate can be calculated in the following way... It is the discount rate + 3%= prime rate. For example, the discount rate is currently at 4.75% + 3%= 7.75% prime rate.


In case you are wondering what impact this has on mortgage interest rates, mortgage rates will most often will actually move opposite direction of the discount rate change, due to the dynamics of the financial markets.

I hope this information helps you understand both the discount rate and prime rate.