Interest on Reserve Balances (IORB) Frequently Asked Questions
What is the IORB rate?
What are reserves, why are they important, and how do they work?
Why does the Federal Reserve pay interest on reserves?
How does paying interest on reserves help the Federal Reserve achieve its dual mandate?
Would eliminating interest on reserves save taxpayers money?
Is IORB a windfall or a subsidy for banks?
What is a "scarce" reserves regime?
What would happen if IORB was eliminated? Could the Fed return to a scarce reserves regime?
What is the role of the overnight reverse repo facility?
Prior to the implementation of the IORB rate, did the Federal Reserve pay interest on the balances of eligible institutions in master accounts at Federal Reserve Banks?
Did the Board amend any other provisions of Regulation D in conjunction with the IORB rate amendment?
How is the amount of interest calculated using the IORB rate?
When will interest be paid on balances maintained in a depository institution's account at the Federal Reserve?
Are the amendments to Regulation D replacing the IORR and IOER rates with the IORB rate temporary or permanent?
What is the IORB rate?
Posted: July 29, 2021
The IORB rate, or interest on reserve balances rate, is the rate of interest that, effective July 29, 2021, is paid by the Federal Reserve on balances maintained by or on behalf of eligible institutions in master accounts at Federal Reserve Banks. The interest rate is set by the Board of Governors, and it is an important tool of monetary policy.
What are reserves, why are they important, and how do they work?
Posted: September 23, 2025
Just like a household holds deposits in a bank account, banks hold reserves—money—in accounts at the Federal Reserve. Reserve balances (or "reserves") are a liability of the Federal Reserve and an asset of the depository institutions (hereafter, "banks") that hold them. Only the Federal Reserve, as the central bank, can create reserves.
Reserves are important because they are the most readily available and reliable source of liquidity in the financial system. The adequate provision of liquidity is essential to the safety and soundness of the banking system, the efficiency and reliability of the payment system, and the stability of the U.S. economy. Reflecting these essential functions, banks hold reserves to manage their liquidity, meet payment needs, and satisfy regulatory requirements.
On the Federal Reserve's balance sheet, the assets backing reserves are Treasury and agency securities. When the Federal Reserve adds reserves to the financial system, it does so by buying Treasury securities from private markets and crediting reserve accounts of banks. This process converts Treasury securities held by the public into reserves, dollar-for-dollar. This process does not affect the amount of outstanding Treasury debt. Moreover, consolidated government liabilities (the sum of reserves and Treasury debt) held by the public do not change.
Why does the Federal Reserve pay interest on reserves?
Posted: September 23, 2025
Congress authorized the Federal Reserve to pay interest on reserve balances starting in 2008. The Federal Reserve Board sets the interest rate paid on reserve balances (IORB) to help implement the Federal Open Market Committee's (FOMC) monetary policy decisions, which promote maximum employment and stable prices for all Americans.
IORB is critical because it ensures that the Federal Reserve can exercise control over its key policy rate—the federal funds rate. Adjusting that rate is the primary means of adjusting the stance of monetary policy and is what banks pay for overnight borrowing in the federal funds market.
The FOMC sets the target range for the federal funds rate to achieve its statutory goals of maximum employment and stable prices. The Federal Reserve implements monetary policy by making adjustments to the IORB rate. An increase in the IORB rate will put upward pressure on a range of short-term interest rates. The opposite holds for a decrease in the IORB rate. Typically, changes in the FOMC's target range are accompanied by commensurate changes in the IORB rate by the Board to keep the federal funds rate at a level consistent with the FOMC's target range.
How does paying interest on reserves help the Federal Reserve achieve its dual mandate?
Posted: September 23, 2025
The authority to pay IORB is critical for the Federal Reserve to control its policy rate and to achieve its dual-mandate goals of maximum employment and price stability.
In the Fed's monetary policy implementation framework, an ample supply of reserves ensures adequate liquidity in the banking system. In this framework, setting the IORB rate is the main tool to control short-term interest rates.1 Without IORB, the Federal Reserve would have to shift its implementation framework abruptly, which would be extraordinarily disruptive, potentially resulting in money market volatility or Treasury market dysfunction. These disruptions would make it extremely difficult for the Federal Reserve to achieve its dual mandate goals.
IORB can be implemented with either a large or a small balance sheet, which means that rate control can be maintained independently of the size of the Fed's balance sheet. Amid large, unpredictable shifts in the demand for liquidity from the private sector or large shifts in other liabilities on the Federal Reserve's balance sheet that affect reserve supply—including large swings in the Treasury General Account—it is critical to be able to maintain rate control in a range of settings. The system has worked very well at controlling the policy rate and reducing excess volatility in funding markets in a wide range of economic and financial circumstances.
Would eliminating interest on reserves save taxpayers money?
Posted: September 23, 2025
No.
The Federal Reserve earns interest on its holdings of securities, which are primarily Treasury securities. These securities holdings back reserve balances. While the Federal Reserve pays interest on reserves, it also receives interest income from the Treasury securities backing the reserves. Over time, that interest income from securities more than exceeds the interest paid on reserve balances. In addition, if a bank were to hold Treasury securities directly instead of reserves as part of its portfolio of liquid assets, the bank would still earn interest paid by the government—both Treasury securities and reserves are government liabilities—and there would be no net effect on interest earned or paid by the government.
If the Federal Reserve could not pay interest on reserves, in order to restore control of the federal funds rate, it would need to sell off vast quantities of the income-generating securities on its balance sheet. In such a scenario, while Federal Reserve interest payments would decline, so too would interest earnings, resulting in no benefit to the taxpayer.
The Federal Reserve remits all net income to the U.S. Department of the Treasury after covering expenses and capital. As the Federal Reserve's portfolio of Treasury securities has a longer maturity than reserves and as the Treasury yield curve typically slopes upward, the Fed's net interest income is generally positive—benefiting taxpayers. While the Federal Reserve's net income has been negative since late 2022, that temporary outcome has been highly unusual and reflected the need to raise the policy rate to control inflation. The Fed's net income will soon turn positive again. Since 2010, cumulative Federal Reserve remittances to Treasury have totaled nearly $850 billion. Hence, over the longer run, paying interest on reserves does not cost taxpayers anything extra.
Is IORB a windfall or a subsidy for banks?
Posted: September 23, 2025
Banks' IORB earnings are not a windfall or a subsidy for banks.
If banks did not hold reserves, they would likely hold other similar, short-term instruments, such as short-term Treasury securities. Short-term Treasury securities earn similar interest to reserves. Banks fund both reserves and short-term Treasury securities with deposits and other types of liabilities, and so the cost of holding reserves is the same as holding short-term Treasury securities. Because the rate paid on reserves is close to that on short-term Treasury securities, and the rates paid on the liabilities that fund those assets are the same, there is no windfall.
What is a "scarce" reserves regime?
Posted: September 23, 2025
Before the Global Financial Crisis, the Fed implemented monetary policy in a scarce reserves regime, which meant that banks did not hold large reserve balances. This regime was burdensome for banks and the financial system more generally.
The scarce reserves regime minimized the amount of liquidity in the system consistent with the intended policy rate. The Fed would intervene daily in financial markets to fine tune the supply of reserves to achieve the desired policy rate. Swings in demand for reserves were often difficult to anticipate and at times led to excess rate volatility and liquidity shortages, which often led the Federal Reserve to take additional actions to ensure that its policy stance was adequately transmitted to financial markets and that the Federal Reserve could achieve its dual mandate goals.
Reserve requirements helped to stabilize demand for reserves, as reserves did not earn interest then. Holding reserves without interest was a "tax" on banks, which led to inefficiencies such as wasteful transactions to avoid the tax. And because liquidity was scarce, banks relied much more heavily on unsecured interbank lending. This type of lending can rapidly evaporate in times of stress, as occurred during the Global Financial Crisis.
What would happen if IORB was eliminated? Could the Fed return to a scarce reserves regime?
Posted: September 23, 2025
Eliminating IORB would be extraordinarily disruptive to the financial system and the economy.
If the Federal Reserve no longer paid interest on reserve balances, demand for reserves would plummet, and the Federal Reserve's policy rate—the federal funds rate—would also plunge. Control of the policy rate would be lost. This would mean that monetary policy would no longer be appropriately calibrated to economic conditions and would push the economy away from the Fed's dual mandate goals.
To restore rate control, the Fed would face a highly challenging situation. The Federal Reserve would shrink its balance sheet rapidly to return to a scarce reserves regime. To go back to a scarce reserves regime rapidly, sales of securities over a short period of time would be needed to shrink the balance sheet and hence the quantity of reserves in the system. The volume and speed of these sales would strain Treasury market functioning and could compromise financial stability. Market participants would need to absorb the sales of Treasury securities and agency mortgage-backed securities, which would put upward pressure on the entire yield curve, raising borrowing costs for the Treasury and the private sector.
Even if the Fed successfully reduced its balance sheet and regained control of rates under a scarce reserves regime, eliminating IORB would make the banking system less resilient. Banks would hold significantly lower levels of reserves, the most liquid asset in the banking system, and would therefore be more vulnerable to runs and other shocks, leading to a less prosperous and more volatile economy.
What is the role of the overnight reverse repo facility?
Posted: September 23, 2025
The overnight reverse repo facility (ON RRP) works in conjunction with IORB to control the policy rate by providing a firm floor for money market rates. IORB is only available to depository institutions, but there are many other types of entities in money markets, which are the key markets involved in the first stages of monetary policy transmission to households and businesses. The ON RRP facility is available to a broader set of money market participants, such as money market funds. By making a certain rate of return available on assets held by money market participants, the combination of IORB and ON RRP keeps the federal funds rate in the FOMC's target range and supports effective transmission of monetary policy.
The ON RRP facility also is effective in absorbing excess liquidity in the system. In times of abundant liquidity, funds flow into the ON RRP facility and do not have to be held solely by the banking system. This serves as a safety valve for banks so they can support the credit needs of households and businesses rather than holding excessive quantities of reserves.
The ON RRP facility uses reverse repurchase agreement or "repo" transactions to absorb liquidity from approved counterparties. A repo transaction is a long-standing and standard open market operation tool for absorbing (reverse repo) or providing (repo) liquidity.
Prior to the implementation of the IORB rate, did the Federal Reserve pay interest on the balances of eligible institutions in master accounts at Federal Reserve Banks?
Posted: July 29, 2021
Yes, the Federal Reserve has paid interest on the balances of eligible institutions in master accounts at Federal Reserve Banks since October 6, 2008. Up to and including July 28, 2021, interest was paid at an IORR (interest on required reserves) rate and at an IOER (interest on excess reserves) rate. The IORR rate was paid on balances maintained to satisfy reserve balance requirements, and the IOER rate was paid on excess balances. Effective March 24, 2020, the Board amended Regulation D to set all reserve requirement ratios for transaction accounts to 0 percent, eliminating all reserve requirements. As a result, there is no longer a need to describe interest rates based on whether the balance satisfies a reserve balance requirement. To account for those changes, the Board approved a final rule amending Regulation D to replace references to an IORR rate and to an IOER rate with references to a single IORB rate. The IORB rate is specified in the Board's Regulation D.
Did the Board amend any other provisions of Regulation D in conjunction with the IORB rate amendment?
Posted: July 29, 2021
Yes, the Board made amendments to simplify the formula used to calculate the amount of interest paid on balances maintained by or on behalf of eligible institutions in master accounts at Federal Reserve Banks and made other minor conforming amendments.
How is the amount of interest calculated using the IORB rate?
Posted: July 29, 2021
Interest will be calculated as the amount equal to the IORB rate on a day multiplied by the total balances maintained on that day.
For more information on the calculation of the interest paid on reserve balances, see the Reserves Administration Application FAQs.
When will interest be paid on balances maintained in a depository institution's account at the Federal Reserve?
Posted: June 2, 2021
Interest payments for days in a maintenance period will continue to be credited to a depository institution's account at the Federal Reserve one business day after the end of a maintenance period. A maintenance period consists of 14 consecutive days beginning on a Thursday and ending on the second Wednesday thereafter.
Are the amendments to Regulation D replacing the IORR and IOER rates with the IORB rate temporary or permanent?
Posted: June 2, 2021
The Board does not have plans to re-impose reserve requirements in the foreseeable future. Accordingly, there will be no need in the foreseeable future to describe different interest rates for balances that satisfy a reserve balance requirement and excess balances. The Board may re-impose reserve requirement ratios in the future if conditions warrant.
1. For more information, see FEDS Notes, "Implementing Monetary Policy in an "Ample-Reserves" Regime: The Basics (Note 1 of 3). Return to text