What is the Federal Funds Rate?

The federal funds rate is the overnight rate at which commercial lenders lend excess reserves to other institutions, on an un-collateralized basis.

This term is unique to the United States, though other central banks around the world also have an overnight rate. The federal funds rate is a closely watched and crucial rate for determining how easy capital is to access.

The lower the fed funds rate, the more accessible the Federal Reserve is trying to make cash - to inspire banks to borrow and lend. The opposite is also true, where the Fed may raise the fed funds rate if an economy is overheating or lending needs to be curbed.