Fed Paid Banks and Funds $400 Billion Over 2 Years for Sitting on Cash

The banking industry has benefited from the Federal Reserve’s measures to control inflation. Over the past two years, the U.S. central bank paid out more than $400 billion to banks and money market funds in interest payments and other transactions meant to curb lending to fight inflation, based on data published by the Fed as of July 1. After a rate hike spree in 2022 and 2023, the central bank now pays 5.4 percent annual interest on “reserves”—any money a bank leaves parked at the Fed overnight. The banks, on the other hand, haven’t necessarily passed on the windfall to its customers, as deposit rates remain very low compared to the rates banks receive from the Fed. Customers would often have to utilize less convenient tools, such as Certificates of Deposit (CD), to access rates comparable to what the Fed currently pays....