Fed Cuts Discount Rate by 50 Basis Points to 5.75%

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The Fed cut discount rate today by 50 basis points (1/2 percent) to 5.75% signaling its concern over the credit crunch and attempting to reassure markets. This and rate increases on bank deposit products show the need that banks have to gain deposit dollars and maintain liquidity.

The Fed today cut the discount rate to 5.75% sending the message that it to is worried about credit markets. The discount rate is the rate that commercial banks and other depository institutions are charged on loans from regional Federal Reserve offices. In general, banks try to limit their use of Federal Funds because it is generally more expensive than obtaining cash through customer deposits or other means.

Interestingly, I noticed on BestCashCow's rate tables that several large mortgage lenders (Countrywide) have significantly increased the rate they are paying on CDs and savings accounts in an attempt to bring in depositor money. Notice that even these top rates are below the Fed Discount rate.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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Bank Product Term Interest Rate (APY)
Bank5 Connect 1-Year 2.85% APY with $500 minimum
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Popular Direct 5-Year 3.40% APY with $10,000 minimum
M.Y. Safra Bank 5-Year 3.26% APY with $500 minimum

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