What it is
Interest on reserve balances (IORB) is a key monetary policy tool used by the Federal Reserve. Before 2021, this rate was split into interest on required reserves (IORR) and interest on excess reserves (IOER). Now, IORB applies to all balances held by banks at the Fed, regardless of whether they are required or excess. By adjusting the IORB rate, the Fed influences the incentive for banks to hold reserves, affecting the supply of money available for lending in the broader economy.
The IORB rate effectively sets a floor for the federal funds rate, as banks are unlikely to lend to other banks at a rate lower than what they can earn risk-free from the Fed. When the Federal Open Market Committee (FOMC) decides to raise or lower its target range for the federal funds rate, it adjusts the IORB rate in tandem. News reports often mention IORB as part of the Fed's strategy to manage short-term interest rates and implement its monetary policy stance.
Why it matters
IORB is a primary tool the Fed uses to control short-term interest rates, directly impacting borrowing costs for banks and influencing broader economic activity.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice