79
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Can I lend a small amount of my own money to a bank at the federal funds rate?
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 ...
- 3,709
40
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Why would a bank need to accept deposits from private clients if it can just borrow from the Federal Reserve?
borrow money from the Central Bank
Wrong premise. They cannot borrow as much as they want and they cannot borrow without collateral i.e. government debt instruments they hold or any other instrument ...
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33
votes
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Why would a bank need to accept deposits from private clients if it can just borrow from the Federal Reserve?
They don't actually need to. They accept deposits for historical reasons and because they make money doing so, but there's nothing key to their business that requires them to do so.
Here's a decent ...
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29
votes
Can I lend a small amount of my own money to a bank at the federal funds rate?
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 ...
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24
votes
Why would a bank need to accept deposits from private clients if it can just borrow from the Federal Reserve?
Banks cannot just borrow from the Federal Reserve and use that money to make loans. The first thing you need to understand is how fractional reserve banking works. The banks can make loans with money ...
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12
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Why did the composite rate for I bonds issued drop to 6.89% from 9.62% when the Fed has been increasing interest rate?
I Bond rates are linked to current inflation (which has been falling since June), while the Fed increases interest rates in the hope that inflation decreases more in the future*.
https://www....
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11
votes
Can I lend a small amount of my own money to a bank at the federal funds rate?
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 ...
- 3,353
8
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Why did the composite rate for I bonds issued drop to 6.89% from 9.62% when the Fed has been increasing interest rate?
You can look here for the actual data. The bond pays a fixed rate and adjusts for inflation so that your real return is always exactly equal to the fixed rate. That rate is established by the ...
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7
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What are exactly these "interest rates" you hear about in relation to the Fed?
The interest rate controlled by The Fed (AKA the Federal Funds Rate) is for the rate of interest earned by banks when they loan out their excess cash reserves to each other.
The Federal Reserve, (...
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7
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Why would a bank need to accept deposits from private clients if it can just borrow from the Federal Reserve?
Collateral requirement
Borrowing money from the Federal Reserve (or other central banks) requires full collateral, generally in terms of treasury bonds. In that sense it is only a source of liquidity ...
- 3,353
7
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Why does the Fed change rates in quarter points rounding?
I'm pretty sure it's just a policy that the Fed seems to follow. I know of no mechanical reason why they couldn't use more precise increments, but possibly for simplicity (or tradition) they choose to ...
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6
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Why would a bank need to accept deposits from private clients if it can just borrow from the Federal Reserve?
They don't need to accept deposits from normal persons, but that's how they make lots of money. Banks make money off the fees they charge retailers when those folks swipe their debit cards at the ...
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6
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Why does the Fed change rates in quarter points rounding?
According to A Model for the Federal Funds Rate Target at page 13
changes as small as 6.25 basis points were sometimes observed prior to 1990
Similarly, according to The Relationship Between the ...
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6
votes
Can I lend a small amount of my own money to a bank at the federal funds rate?
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 ...
- 1,556
5
votes
Why are bank rates based on the federal interest rate?
From what I have read, the Federal Reserve sets the "key rate", which is the rate at which banks can borrow money from the Reserve.
This is called the discount rate, but it is mostly irrelevant, as ...
- 21k
5
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What exactly is the interest rate that the Fed is going to adjust?
Federal Funds Rate
The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight. The federal funds rate is generally ...
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5
votes
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Should I change 401k investment options to prepare for rising interest rates?
The bond funds should tell you their duration. My 401(k) has similar choices, and right now, I'm at the short maturity, i.e. under 1 year. The current return is awful, but better than the drop the ...
5
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Should I change 401k investment options to prepare for rising interest rates?
I see that you're invested in a couple bond funds. You do not want to be invested in bonds when the Fed raises rates. When rates climb, the value of bond investments decline, and vice-versa. So that ...
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Bond yield vs Fed interest rate correlation
You have to consider the impact of market interest rates on existing bonds. Assume that market risk-free interest rates are 2%. If I purchase a bond for $1000 that has a 2% yield and 10 year maturity, ...
- 2,365
5
votes
Why is a Federal Reserve Note an Obligation of the United States?
You misread the statute. You're referring to the 12 USC Sec. 411:
Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of ...
- 161k
4
votes
What exactly is the interest rate that the Fed is going to adjust?
While it is true that if the Federal reserve bank makes a change in their rate there is not an immediate change in the other rates that impact consumers; there is some linkage between the federal rate,...
- 132k
4
votes
Why are bank rates based on the federal interest rate?
I'll break what you wrote into two questions:
A) Why do banks base loan rates on a benchmark provided by the fed?
Banks like to decompose your interest rate into two components:
The prevailing ...
- 15k
4
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Can I lend a small amount of my own money to a bank at the federal funds rate?
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% ...
- 2,232
4
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Can I lend a small amount of my own money to a bank at the federal funds rate?
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 ...
- 1,109
4
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How has the Fed been reducing its balance sheet?
The balance sheet slightly increased recently, but the general trend has been toward smaller. You can see the balance sheet (and other great data) on the website for the St. Louis Federal Reserve: ...
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4
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What are the practical effects for banking consumers from Fed cutting fractional reserve requirements to zero?
Short Answer:
The FDIC exists specifically so that there are not MASS runs on the banks. No need to worry as long as you're under the limit(s) in your account(s).
Make sure your account is insured: ...
- 1,259
4
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Why do some dates not have any data on the Federal Reserve historical currency data?
It's due to banking holidays. You need to look at a prior date, or use
In the case of 12 Nov 2001, this was due to Remembrance Day (observed).
Alternatively, don't use the Fed as a source! The forex ...
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3
votes
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Can you use fed interest rates to predict the share price of a bond ETF?
The key point is that there is not one single "interest rate". There are rates for several key durations, from 1 day up to 30 years. The longer-term rates indicate the market's expectation of what ...
- 129k
3
votes
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What will happen to the stock market, once governments increase interest and stop quantitative easing?
Is this the more or less direct result of quantitative easing?
Yes.
(EDIT: and all that 401(k) and IRA money needing somewhere to go.)
Is it also a result of low interest rates?
That's what QE ...
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