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IPFS News Link • Central Banks/Banking

Why the Federal Reserve Pays Interest to Your Bank--and You Get Nothing

• by Russ McCullough

Ithink the average American does not know that the US Federal Reserve currently pays 4.90% interest to banks on people's checking and savings deposits—this includes the cash in the drawer! I just checked my personal savings account and I am currently getting .01% on my savings account. My hard-earned money is earning my bank 4.89% interest—this is not right. How much is your bank making off your deposits?

Additionally, did you know that your deposits no longer get loaned out to small businesses and consumers the way they used to? It is true, part of your deposits at the bank partially fund government deficit spending rather than going to private loans for small businesses and individuals. Americans are partially funding government spending with their checking and savings deposits! If you're upset about this, you are not alone. The recent inflation and growing debt have me upset and that prompted this article.

Customer checking account deposits are mostly interest free, but The Federal Reserve Bank of the US (Fed) pays banks interest on a fraction of those deposits. For example, if you have $1,000 in your checking account earning 0%, the bank may have $600 of your deposit on deposit with the Fed earning 4.9% as of April 2023.