Hello and welcome to Moneygirls quick and dirty tips for a richer life.

Today's topic, what does a lower discount rate mean for you?

Samir in New Jersey called in with this question.

Hi money girl, this is Samir today the federal reserve and an emergency action lowered the rate of a

of a discount rate and I guess they don't normally do this and they did this because the stock market has been dropping.

Can you explain what it is they lowered?

What is this discount rate?

How is it different and why they would have done this even before their next meeting?

Because I've never heard of this before.

And again, this is Samir from New Jersey and I love your show. Thank you.

Thanks for the question Samir.

Okay to start off what is the discount rate?

The discount rate is the interest rate a regional U.S. Federal Reserve Bank charges to make loans The

interest rate a regional US Federal Reserve bank charges to make loans to

depository such as banks and credit unions to meet temporary cash shortages.

On Friday, August 17th, 2007, the Federal Reserve lowered the discount rate by half a percent, from 6.25 down to 5.75 percent.

It was the first time the Fed approved an emergency cut to the discount rate since immediately following the attacks of September 11th, 2001.

The Federal Reserve also extended the time that banks can take to repay the loans from one day up to 30 days.

It also made the loans renewable.

A related term you'll hear in the financial news is the discount window.

The discount window is the lending the Federal Reserve does at the discount rate.

It's pretty common for people to confuse the discount rate. It's pretty common for people to confuse the discount

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