What is the 'Bank Discount Rate'
The bank discount rate is 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.
BREAKING DOWN 'Bank Discount Rate'
Some securities are issued at a discount to par, meaning that investors can purchase these securities at a price lower than the stated par value. For example, Treasury bills, which are backed by the full faith and credit of the U.S. government, are pure discount securities. These shortterm noninterest bearing money market instruments do not pay coupons, but investors can purchase them at a discount and receive the full face value of the Tbill at maturity. For example, a Treasury bill is issued for $95. At maturity, the debtholders will receive the face value of $100. The difference between the discount purchase price and the par value is the dollar rate of return. This is the rate at which the central bank discounts Treasury bills, and it is referred to as the bank discount rate.
The bank discount rate method is the primary method used for calculating the interest earned on noncoupon discount investments. It is important to note that the bank discount rate factors in simple interest, not compound interest. In addition, the bank discount rate is discounted relative to the par value, and not relative to the purchase price. For example, assume a commercial paper matures in 270 days with a face value of $1,000 and a purchase price of $970.
First, divide the difference between the purchase value and the par value by the par value.
($1,000  $970)/$1,000 = 0.03, or 3%
Next, divide 360 days by the number of days left to maturity. To simplify calculations when determining the bank discount rate, a 360day year is often used.
360/270 = 1.33
Finally, multiply both figures calculated above together.
3% x 1.33 = 3.99%
The bank discount rate is, therefore, 3.99%.
Following our example above, the formula for calculating the bank discount rate is:
Bank Discount Rate = (Dollar Discount/Face Value) x (360/Time to Maturity)
Since the formula uses 360 days instead of 365 days or 366 days in a year, the bank discount rate calculated will be lower than the actual yield you receive on your shortterm money market investment. The rate should, therefore, not be used as an exact measurement of the yield that will be received.

Bank Discount Basis
Bank discount basis is a convention used when quoting prices ... 
Discount Yield
Discount yield is a measure of a bond's percentage return, frequently ... 
Discount Note
A discount note is a shortterm debt obligation issued at a discount ... 
Discount Rate
Discount rate is the interest rate charged to commercial banks ... 
Pure Discount Instrument
A pure discount instrument is a type of security that pays no ... 
Accrued Market Discount
Accrued market discount is the gain in the value of a discount ...

Insurance
Get Sale Prices On Healthcare With Discount Plans
Medical discount plans can help the uninsured or underinsured afford better healthcare. 
Retirement
Senior Discounts Alert: National Parks Pass Rises Aug. 28
First, Social Security rose a measly 0.3%. Now, the national parks lifetime pass is going up 8 times. Yet another reason to save with senior discounts. 
Small Business
Companies That Offer Unique Employee Discounts
These companies offer employees great discounts and unique incentives you don't find with your average employer. 
Small Business
Capital Budgeting: Which is Better, IRR or NPV?
Using internal rate of return and net present value for capital budgeting evaluations often end in the same result. But there are times when using NPV to discount cash flows makes more sense. 
Investing
Debt Buybacks Continue
Many companies are buying bonds back at a discount, and adjusting capital structures to more acceptable levels. 
Investing
Valuation Of A Preferred Stock
Determining the value of a preferred stock is important for your portfolio. Learn how it's done. 
Investing
Introduction to Treasury Securities
Purchasing Treasury securities backed by the U.S. government and knowing their characteristics can provide a steady guaranteed income and peace of mind. 
Investing
How to compare the yields of different bonds
Understand how to compare the yields of different bonds and find out how to equalize and compare fixedincome investments with different yield conventions.

How do central banks impact interest rates in the economy?
Learn how central banks such as the Federal Reserve influence monetary policy in the economy by increasing or decreasing ... Read Answer >> 
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 >> 
How is terminal value discounted?
Find out why investors use the terminal value, why the terminal value is discounted to the present day, and how it relates ... Read Answer >> 
How can I calculate the carrying value of a bond?
Learn what the carrying value of a bond means, how it can change, and the easiest way to calculate a bond's carrying value ... Read Answer >>