Talking Shop: Interest Rates for In-House Banks

# Banking

# Talking Shop

Editor’s note: NeuGroup’s online communities provide members a forum to pose questions and give answers. Talking Shop shares valuable insights from these exchanges, anonymously. Send us your responses: [email protected].

Member question: “For those that use an in-house bank/cash center, can you share the interest rates you use on the excess funds loaned to the in-house bank?

“Does the in-house bank/cash center pay the lending entity:

“An overnight rate

“A monthly interest rate

“A rate that matches the rate on the investment made by the In-house bank with the loaned funds?”

Peer answer 1: “We pay an arm’s-length daily rate and have a spread differential between what we pay/charge for deposits/loans. It is a daily rate that compounds monthly on the structures run as cash pools and compounds at the end of the term on fixed-term structures.” Peer answer 2: “From my past experience, the rate used was similar to the rate that an external banking partner would give to a corporate on its deposit account (money market deposit account or similar). This was to ensure commerciality in the IHB structure for tax purposes.”

Peer answer 3: “We set an arm’s-length monthly rate that is applied to loan balances.”

Talking Shop: Interest Rates for In-House Banks

Editor’s note: NeuGroup’s online communities provide members a forum to pose questions and give answers. Talking Shop shares valuable insights from these exchanges, anonymously. Send us your responses: [email protected].

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