Federal Funds Rate

• The Federal Funds rate is a short-term rate that banks charge each other for loans of federal funds. This rate may vary from bank to bank or from day to day. The Federal Open Market Committee makes adjustments to the Federal Funds Rate when necessary. An increase in the rate may curb inflation pressures, while a decrease may stimulate economic growth.
  
  

Federal Discount Rate

• The Federal Discount Rate is the rate that banks are charged to borrow short-term funds directly from the Federal Reserve Bank. The Discount Rate is always higher than the Federal Funds Rate, so it is typically used as a last resort by banks that may need to boost their cash reserves.
  
  

Prime

• Both the Federal Funds Rate and the Discount Rate affect the Prime Rate, which is the rate banks use to charge their credit-worthy customers for loans. Prime affects consumer products such as the lending rates for mortgages, home equity loans and personal loans.
  
  

11th District Cost of Funds

• The COFI index is based on the monthly weighted average cost of funds for the 11th District Savings Institutions. It is available from the Federal Home Loan Bank of San Francisco and represents saving institutions in Arizona, California and Nevada, and the interest paid for savings and checking accounts. It is the slowest moving and most stable index, which is why it is also tied to adjustable rate mortgage (ARM) indexes.