Discount rate

price paid by the holder of promissory notes in exchange for early payment of the note

For the interest rate charged to banks for borrowing short term funds directly from a central bank, see discount window. The discount rate is a financial concept based on the future cash flow in lieu of the present value of the cash flow. The divisor in the discount rate formula is the resultant future value, including income.
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Noun
1. the rate of interest set by the Federal Reserve that member banks are charged when they borrow money through the Federal Reserve System
(hypernym) interest rate, rate of interest
(classification) United States, United States of America, America, US, U.S., USA, U.S.A.
2. interest on an annual basis deducted in advance on a loan
(synonym) discount, bank discount
(hypernym) interest rate, rate of interest
(hyponym) bank rate

The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.