Bank rate is a rate at which RBI lends money to the commercial banks. Bank rate serves as basic parameter for all commercial banks to fix rate of interest on long term loans to the individuals and corporate, it is the only rate which helps the economy in controlling inflation and deflation. Bank rate is also called discount rate. A change in bank rates affects customers as it influences prime interest rates for personal loans.

Here are the different types of monetary instruments on which financial institutions offer the following bank rates:

Savings account bank rate: Modest rates are charged on funds that are deposited in the savings accounts. However, Investors have high flexibility in withdrawing the deposits.

Certificates of deposit (CD) bank rate: These offer comparatively high interest rates compared to savings accounts. Bank rates on CDs are determined by the term period of a deposit and the current economic situation. The longer the term of a CD, the higher will be the bank interest rate.

Money-market funds bank rate: The interest rate on money-market funds is relatively low. As most of the money market accounts are privately insured, it is a secure method of investment. Deposits in a money market account generate interest through short-term investments.