The digital era · 2000–today
2008
The Fed pays interest on reserves
Banks start earning interest on money they keep at the Federal Reserve.
A 2006 law allowed the Fed to pay interest on banks' reserves from 2011. The financial crisis brought it forward to October 2008, as the Fed flooded banks with reserves and needed a way to keep control of short-term rates.
💡 Why it made sense then
Paying interest on reserves let the Fed set a floor under interest rates even with trillions of dollars of reserves in the system.
🎮 In Journey Shares
The game's bank earns this rate on its spare cash, updated daily, which is where savers' interest comes from.
Ideas it gave us
- 🏦 Interest on reserve balances
Interest on reserve balances is the rate the Federal Reserve pays banks on money they keep at the Fed. It sets a floor under the rates banks lend at.
- 🌍 Federal funds rate
The federal funds rate is the interest rate at which US banks lend reserves to each other overnight. The Federal Reserve sets a target range for it, and it drives borrowing costs across the economy.
Practise with $10,000 in play money
Free. No real money involved.