As of any date of determination, the federal funds effective rate is the weighted average of the federal funds rate across all the overnight transactions for the previous day. The federal funds rate is the interest rate at which banks lend other banks excess reserves they have on deposit with their supervising Federal Reserve Bank. The federal funds effective rate is used in loan agreements to calculate the base rate the borrower is required to pay on its loans. For more information on the federal funds effective rate, see Standard Clauses, Loan Agreement: Borrowing Mechanics.