What is the 'Bank Discount Rate'
The interest rate for shortterm moneymarket instruments like commercial paper and Treasury bills. The bank discount rate is based on the instrument's par value and the amount of the discount.
The bank discount rate is the required rate of return of a safe investment guaranteed by the bank.
Next Up
BREAKING DOWN 'Bank Discount Rate'
Assume an unsecured obligation (e.g., commercial paper) that matures in one year with a face value of $1,000 and a purchase price of $970.
($1,000  $970) = $30 discount
$30/$970 = 3.1% rate of interest
To simplify calculations when determining the bank discount rate, a 360day year is often used.
RELATED TERMS

Discount Yield
Discount yield is a measure of a bond's percentage return. Discount ... 
Discount Note
A shortterm debt obligation issued at a discount to par. Discount ... 
Market Discount
The difference between a bond's stated redemption price and its ... 
Pure Discount Instrument
A type of security that pays no income until maturity; upon expiration, ... 
Commercial Paper
An unsecured, shortterm debt instrument issued by a corporation, ... 
Present Value  PV
The current worth of a future sum of money or stream of cash ...
Related Articles

Markets
Explaining the Federal Discount Rate
The federal discount rate is the rate at which eligible banks or other depository institutions can borrow funds from a Federal Reserve bank. 
Markets
Fed's Discount Rate
The Federal discount rate is the amount of interest a central bank charges private banks for shortterm loans. 
Managing Wealth
Introduction To Commercial Paper
Commercial paper is a shortterm instrument that can be a viable alternative for retail fixedincome investors looking for a better rate of return on their money. 
Markets
Explaining Original Issue Discount
An original issue discount is the amount below par at which a bond or other debt instrument is issued. 
Retirement
Money Market: Commercial Paper
For many corporations, borrowing shortterm money from banks is often a laborious and annoying task. The desire to avoid banks as much as possible has led to the widespread popularity of commercial ... 
Managing Wealth
Finding A Discount On Your Next Bond Investment
Discount rates have nothing to do with buying things on sale. Rather, it helps you figure out how much to pay today for a bond or cash flow in the future. 
Personal Finance
Get Sale Prices On Healthcare With Discount Plans
Medical discount plans can help the uninsured or underinsured afford better healthcare. 
Managing Wealth
4 Types Of Money Market Yields
We give you four equations to help figure out the yields on your investments. 
Retirement
Benefit From Senior Discounts
Older people can save a surprising amount using senior discounts. With Social Security payments flat for next year, this is the time to start using them. 
Investing
Why Use a Discount Broker?
A discount broker is a stockbroker that does not offer clients investment advice, but trades shares for a smaller commission than a fullservice broker.
RELATED FAQS

What is the difference between the cost of capital and the discount rate?
Learn about the differences between the cost of capital and the discount rate as they relate to estimating a required return ... Read Answer >> 
What are the disadvantages of using net present value as an investment criterion?
While net present value (NPV) calculations are useful when you are valuing investment opportunities, the process is by no ... Read Answer >> 
What's the difference between the prime rate and the discount rate?
Learn more about the prime rate and the discount rate and how the Federal Reserve uses these rates in the U.S. economy. Explore ... Read Answer >> 
How does a high discount rate affect the economy?
Find out what would happen if the Federal Reserve decided to set a very high discount rate, the rate at which banks can borrow ... Read Answer >> 
How can retail investors invest in commercial paper?
Find out how individual retail investors can purchase shortterm commercial paper, but why it rarely makes good investment ... Read Answer >> 
What are the most important interest rates?
Learn about the most important interest rates in the economy; the Federal funds rate and discount rate are set by the Federal ... Read Answer >>