Why is the discount rate called the discount rate? It doesn't discount anything. On the contrary, it's about how much the central bank charges other banks to use its financial resources. Why isn't it called, for example, 'the basic interest rate' or 'the primary interest rate'? I can think of many better names.

  • "Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal Reserve Bank through the discount window loan process. Second, the discount rate refers to the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows." investopedia.com/terms/d/discountrate.asp
    – Juhasz
    Apr 20, 2021 at 20:06
  • Questions about technical terminology may be better on a specialist stack exchange. From an ELL point of view the answer is that "this what it is called... learn it" Because none expert native speakers will only know the name, and won't know the reason for the name. I had to research to find the technical meaning of discount.
    – James K
    Apr 21, 2021 at 20:38

1 Answer 1


Discount has a couple of economic meanings. One is a reduction in price in exchange for prompt payment:

The car is $2500 If you pay me cash today I'll give you a discount of $500 on the car.

Equivalently, and in technical use, a discount is a charge agreed in exchange for late payment

The car is $2000, but if you need a month to find the money, I'll charge a discount of $500.

This second use of discount is technical and probably wouldn't be used in a conversation about cars, but might be found in a textbook on economics.

The "Federal Reserve discount rate" is the rate at which the Fed charges discounts on short term loans to other banks.

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