Money & Finance › The Fed, money supply & inflation › The federal funds rate
Interest on reserve balances (IORB)
Since Oct 2008· Concept
Fact, law or dataA rule, statute, definition or measured number.
The interest rate the Fed pays banks on money they keep in their Fed accounts, now its main lever on short rates.
See it on the Money & Finance map →How it works
Since October 2008 the Fed has paid interest on reserves. After QE flooded banks with trillions in reserves, nudging the supply of reserves no longer moved rates. Instead the Fed sets the IORB rate inside its target range: no bank lends overnight for much less than it earns risk-free at the Fed. A companion overnight reverse-repo facility sets a floor for money market funds, which cannot hold reserves.
Why it matters
It is how the Fed actually moves short rates, and why money market fund and savings yields track Fed decisions. It also pushed the Fed into operating losses from late 2022.
Think of it like
Like a guaranteed rent on vacant space: no landlord leases to a tenant for less than the government pays to keep the unit empty.
Facts, rules and data
Authorized by a 2006 law and moved up to 2008 by the bank-rescue law; the Fed posts IORB and reverse-repo rates with every FOMC decision.
Debates and risks
Some lawmakers call the payments a subsidy to banks and want them ended; the Fed says that would force a return to scarce reserves and weaker rate control.
Connections (3)
▸Interest on reserve balances (IORB) is the main tool for steering The federal funds rateFact, law or data
The connection
With trillions in reserves, banks rarely need to borrow overnight, so the Fed cannot move fed funds by adjusting the supply of reserves. Instead it sets IORB inside its target range. Banks will not lend for much less than IORB, so raising IORB pulls the fed funds rate up with it.
When and why
Paid since October 2008; made the main tool under the 'ample reserves' framework the FOMC formalized in January 2019.
How we know
New York Fed daily data show the effective fed funds rate tracking IORB closely, usually a few hundredths of a point below it.
Debates and risks
Fed funds trades below IORB because big lenders such as the Federal Home Loan Banks cannot earn IORB, so the 'floor' leaks; how much this matters is debated.
▸Interest on reserve balances (IORB) is paid to Commercial banks: taking deposits, making loansFact, law or data
The connection
Banks hold reserve balances at their regional Reserve Bank, and the Fed pays IORB on them daily, so spare cash parked at the Fed earns a risk-free return. That sets the minimum a bank wants from other uses, such as loans or T-bills, and shapes what it pays depositors.
When and why
Paid to banks, thrifts and credit unions with Fed accounts since October 2008; reserves totaled about $3 trillion in 2025.
How we know
The Fed reports reserve balances weekly and its interest expense in audited annual financial statements.
Debates and risks
Critics say banks collected over $100 billion a year at the 2023 peak for doing nothing; supporters call it the cost of controlling rates with ample reserves.
▸Interest on reserve balances (IORB) sets the rate paid on reserves in Dollar plumbing: bank reserves, the TGA and the Fed's reverse repoFact, law or data
The connection
Banks hold reserves at the Fed and earn the IORB rate, set inside the fed funds target range. No bank lends overnight for much less than it earns risk-free at the Fed, so IORB steers market rates. That lets the Fed keep reserves plentiful, about $3 trillion in 2026, without losing control of rates.
When and why
Since October 2008, under laws passed in 2006 and 2008; renamed IORB in July 2021.
How we know
FOMC implementation notes set the IORB rate after each meeting, and fed funds trades track it closely.
Debates and risks
Some lawmakers proposed in 2025 ending interest on reserves to save money; critics say that would disrupt the Fed's rate control.