I have a dollar that I won't be needing tonight, and I hear that banks are in the market for short-term loans. In fact, the present Fed funds rate is higher than the interest rate on any savings account I can find. Is it possible for me to lend at the Fed funds rate?

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    Are you asking if banks will borrow your $1 at the Fed funds rate? Because they only borrow large amounts.
    – RonJohn
    Commented Aug 27, 2019 at 17:11
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    Some U.S. high yield money market accounts are paying more than the FFR Commented Aug 27, 2019 at 17:43
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    Are you literally trying to determine if someone will borrow your dollar? Or are you trying to understand how lending works among financial institutions and eachother and/or the fed? Or are you trying to determine how banks raise funds? Or something else? It feels like your literal question is not your actual question and it's hard to consider putting effort into writing an answer which may not actually answer your actual question.
    – dwizum
    Commented Aug 27, 2019 at 18:26
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    @dwizum My literal question is, is there any way for me to get paid the federal funds rate for $1. Commented Aug 27, 2019 at 18:49
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    It's going to cost the bank the same amount in overhead (well, probably more, since borrowing from the Fed has the machinery already in place) to borrow your $1 as it does to borrow the Fed's $1 million. If that amount is say $10 (which I'd guess is ridiculously low), then they'd lose a lot of money borrowing from you.
    – jamesqf
    Commented Aug 28, 2019 at 17:11

7 Answers 7


You can lend at any rate you like. Finding a borrower is a different matter, as is ensuring that the borrower pays it back.

Few banks will borrow from you at the Fed rate. Currently, rates on savings accounts are less than 0.5% and FFD target is about 2.5%. Plenty of customers still use the savings accounts in spite of this. These customers are your competitors. Why would the bank borrow from you, if someone else will lend for much less?

Another way to think of it is to see the Fed as your competitor. The Fed is an extremely reliable and professional organization. They can borrow from the Fed at the Fed rate. If you lended at the same rate, why would they choose you? What do you offer that the Fed does not? The only thing you can realistically offer is a lower rate.

Looking around, I see some certificates of deposit at 2.5% and even 3%. The former requires at least a 6 mo commitment and the latter is for multiple years. So you can lend money at Fed rate with minimal risk; however, you wouldn't be able to touch the money for many months or years so you probably wouldn't consider it "short term lending".

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    Just to nitpick the first sentence, there's no lower limit on the rate you can offer (although you'll still have to pay tax on the interest you would have earned charging market rates), but in many places there are indeed upper limits on the interest you can legally charge for a loan. Commented Aug 27, 2019 at 18:24
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    In the US, you need to lend at an interest rate of at least the "Applicable Federal Rate" as published monthly by the IRS here: apps.irs.gov/app/picklist/list/federalRates.html Otherwise, it will not be considered a legitimate loan for tax purposes.
    – DavePhD
    Commented Aug 28, 2019 at 16:48
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    @NuclearWang "you'll still have to pay tax on the interest you would have earned charging market rates" Cite? Commented Aug 28, 2019 at 23:19
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    @Acccumulation: Source. "If the lender charges interest at a rate that is lower than the proper AFR, the IRS may reassess the lender and add imputed interest to the income to reflect the AFR rather than the actual amount paid by the borrower. Also, if the loan is in excess of the annual gift tax exclusion, it may trigger a taxable event, and income taxes may be owed. Depending on the circumstances, the IRS may also assess penalties." Commented Aug 29, 2019 at 1:25
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    @user2357112 From your link "The applicable federal rate (AFR) is used by the IRS as a point of comparison versus the interest on loans between related parties, such as family members. " [emphasis added] Commented Aug 29, 2019 at 4:32

Buying Treasury Bills is loaning to the U.S. government.

The 4 week Treasury Bill with an issue date of 8/27 got a 2.098% investment rate.

The 13 week Treasury Bill with an issue date of 8/29 got a 1.992% investment rate.

Individuals can buy Treasury Bills, without any fees, through a Treasury Direct account .

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    How is this, the actual answer to the question, not the accepted one?
    – Saturnix
    Commented Aug 28, 2019 at 18:18
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    The question was about lending to banks, not the government. And those rates are all lower than the FFD rate, although significantly higher than savings account rates.
    – Barmar
    Commented Aug 28, 2019 at 21:55
  • Yeah, the government lends to the banks and the Treasury Bill buyer lends to the government.
    – S Spring
    Commented Aug 29, 2019 at 22:51
  • The Federal Fund Rates set a range in which the National Association banking system can operate within itself and that range is currently 2% to 2.25%. I think the weekly issue of the four-week Treasury Bill rate identifies where the range is currently at.
    – S Spring
    Commented Aug 29, 2019 at 23:04

Wholesale vs retail

For pretty much everything, including loans, the wholesale price is different from the retail price. It is unreasonable to expect the same price when buying a can of Coca Cola as the price you could get when buying a truckload of the exact same cans. It is unreasonable to expect the same price when buying a pound of grain as the price you could get when buying a shipload of grain in the commodity markets. And in the exact same manner it's also unreasonable to expect the same rate for a tiny deposit as for a large one.

The money market deals in large volumes of money. It's not entirely closed, you can participate directly if you want and are able to (many companies and individuals with sizeable amounts of cash do so) - but it's a wholesale market, where the participants expect counterparties who'll ask and fulfil large deals. If you're going to make an offer of $10000, then that's simply not a deal that anybody on that market is interested in; the potential earnings on so tiny deals are not worth the dealers time.

Additional aspect is the 'table stakes' for participating in that market. The market standard communications and settlement channels are prohibitely expensive or otherwise unavailable for a random individual. If you don't have a Bloomberg terminal (single user licence is $20000/year IIRC), then they won't be able to talk to you. If you don't have proper access to interbank real time gross settlement systems, then you can't execute any deal you might agree to.

In short, if you're not trading tens of millions or much, much more, then you're likely not a participant in that market, so you can't get the rate of that wholesale market. An intermediary (retail bank) may take many small deals, consolidate them and put them up in the wholesale market. That's a service that takes some effort, marketing and overhead, and creates a separate retail loan market - with rates that are obviously different from the wholesale loan market.

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    I agree with everything except the "hundreds of millions" part, since small banks and CUs aren't that big, and yet they still work the wholesale market. Better to drop it to "tens of millions".
    – RonJohn
    Commented Aug 28, 2019 at 15:24
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    @RonJohn - smaller institutions often don't actually directly participate in the wholesale market. Instead, they'll make deals on the side directly with other institutions. A $50M credit union who wants to park $1M in cash at a $1B credit union (who has an acceptably good deposit rate) will often just call that other CU up and ask to open an account.
    – dwizum
    Commented Aug 28, 2019 at 19:15
  • @dwizum and the $500M CU that wants to park $10M? (After all, my comment said "tens of millions", not "one million".)
    – RonJohn
    Commented Aug 28, 2019 at 19:58
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    Likely the same story, IME. It's rare for CUs or banks under several billion to actually participate in open markets, most of them just work with other institutions if they have cash they want to park somewhere. At this point we're nitpicking of course, but I think if anything it reinforces Peteris's point that amounts actually traded are very very large, and anything smaller than that is handled off market.
    – dwizum
    Commented Aug 29, 2019 at 12:41

As Peteris pointed out, small sums of money aren't worth paying Fed interest on. And, as Money Ann pointed out, there are a lot of people willing to lend similar sums for less. These loans are what are called bank accounts.

The reason private persons are willing to undercut the Fed rates by that much is that the conditions on the loans are heavily in the creditor's favor. So much, in fact, that a bank that tried to offer you a loan like that would find itself in hot water. The most egregious terms in the creditor's (i.e. your) favor are:

  1. The creditor (you) can, on no or very short notice, call in any fraction up to the entire sum of the loan. (In fact, you can call in more than is owed for a steep fee.)
  2. The debtor (the bank) does not get to make payments other than the ones described above.
  3. The debtor doesn't even get a say on how much or little they borrow.

Some banks offer the sorts of savings accounts where you can waive some of these advantages in return for a higher interest, but they tend to have a minimum starting balance.

As an aside, the Federal reserve is supposed to be the lender of last resort so charging the highest interest on a loan to a bank is kind of their prerogative.


If you are asking if you can lend money to the banks, I'm not sure how you would manage that. Maybe it surpasses my level of expertise, but it seems like an overly complicated way to collect ~2.25% interest.

Many online banks are actually beating the Fed Funds rate right now (both Wealthfront and Betterment are over 2.3%). They do this to attract clients that may later opt for investment services that have a management fee.

You can also buy bonds and bond ETFs that would yield similar results.


No, for a few reasons. Banks negotiate the rates amongst themselves, it is not determined by the Fed. The Fed's FOMC sets a target for that rate, and the FRBNY OMO desk tries to arrange to meet that target by adding or removing money supply. But it is a target, not a determination. The real rate (called "effective rate", about 2.12% as of last night) is negotiated between pairs of banks, and noone is going to spend the time negotiating with your for an overnight loan of $1.

Also, the loans that have been negotiated get consumated through FedWire. You don't have direct access to FedWire. There is no way for you to get your $1 transferred to the bank and cleared fast enough for it to do them any good.

However, there are banks offering savings accounts that pay more than the FFR. You don't find them on every corner, you have to shop around. You will have better luck doing that than you will convincing someone to admit you to FedWire, and then someone else to negotiate with you for a $1 overnight loan.


You can either buy treasuries yourself as the other user told you or invest in a money market ETF that holds treasuries or other short-term bonds for you.

SHY, SCHO, VGSH are all valid ones.

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