The discount rate is the interest rate a central bank charges commercial banks for direct loans.
Banks obtain these loans through a central-bank lending facility commonly called the discount window. The rate helps determine the cost of short-term emergency or liquidity funding when a bank borrows directly from the central bank, usually against eligible collateral.
The discount rate is not the same as the federal funds rate. The federal funds rate is the rate banks negotiate with one another for overnight loans of reserve balances, while the discount rate applies to borrowing directly from the central bank. In the United States, the Federal Reserve more commonly uses the term primary credit rate for its main discount-window rate.
“Base rate” can be a broader policy term in some countries, and “prime rate” is generally a commercial-bank lending rate offered to strong borrowers. Those terms can influence borrowing costs, but they do not precisely name the central bank’s direct-loan rate.