Glossary · Money and central banks
Federal funds rate
The federal funds rate is the interest rate US banks charge each other for overnight loans. The Fed steers it, and it sets the tone for all other rates.
Also called: fed funds rate, Fed rate, Fed interest rate, effective federal funds rate, EFFR
November 9, 2026. A year earlier: 3.87%.
Monthly average, Oct 2026
Oct 2026: 3.12 points above the fed funds rate
In plain words
At the end of every day some banks have more money in their accounts at the Fed than they need, and others are a little short. So they lend to each other overnight: Bank A lends $100 million to Bank B tonight and gets it back tomorrow with a day’s interest. The interest rate on these overnight loans is the federal funds rate.
The Federal Reserve does not fix this rate by decree. It sets a target range a quarter of a point wide, such as 4.25% to 4.50%, and uses its tools to keep trading inside it. The middle of each day’s trades is published the next morning as the effective federal funds rate: 3.88% on November 9, 2026.
Why care about an overnight loan between banks? Because it is the floor under almost every other dollar interest rate. When it moves, Treasury bill yields, the banks’ prime rate, credit card rates and savings rates move with it within days.
Example
One night’s loan between two banks
- Bank A has $100 million more in its Fed account than it needs tonight.
- Bank B is $100 million short. It borrows from Bank A at 4.33% a year.
- One night’s interest: $100,000,000 × 4.33% ÷ 360 = $12,028.
- Tomorrow morning Bank B pays back $100,012,028.
Small for one night, but it is the price of money at the very center of the system, and every other rate is priced from it.
One level deeper
How does the Fed keep the rate in its range? Since 2008 it pays banks interest on the reserves they keep at the Fed, the IORB rate, set inside the range. Banks have little reason to lend reserves for much less than the Fed pays them, so the market rate stays close to it. A second tool, overnight reverse repurchase agreements, pays money market funds a rate at the bottom of the range, which works as a floor.
Before 2008 the Fed worked differently: reserves were scarce, and it nudged the rate by adding or draining small amounts of them every day through open market operations. The target was a single number until December 2008, when the Fed cut it to a range of 0 to 0.25%; it has used a range ever since.
The rate peaked at a monthly average of 19.1% in Jun 1981, when the Fed fought double-digit inflation. It spent about 9 years below 0.25% in all, after 2008 and in 2020. Long-term rates follow it only loosely: they depend on where markets expect it to be over the coming years.
The fed funds rate and two Treasury rates since 1954
Short-term rates, like the 3-month Treasury bill, move almost in lockstep with the federal funds rate. The 10-year Treasury yield follows the trend but often goes its own way, because it reflects the inflation and rates investors expect over the next decade.
The numbers behind the chart
| Date | Federal funds rate | 3-month Treasury bill | 10-year Treasury |
|---|---|---|---|
| Jul 1954 | 0.8% | 0.7% | 2.3% |
| Dec 1960 | 2.0% | 2.2% | 3.8% |
| Dec 1970 | 4.9% | 4.9% | 6.4% |
| Dec 1980 | 18.9% | 15.5% | 12.8% |
| Dec 1990 | 7.3% | 6.7% | 8.1% |
| Dec 2000 | 6.4% | 5.8% | 5.2% |
| Dec 2010 | 0.2% | 0.1% | 3.3% |
| Dec 2020 | 0.1% | 0.1% | 0.9% |
| Dec 2022 | 4.1% | 4.2% | 3.6% |
| Dec 2023 | 5.3% | 5.2% | 4.0% |
| Dec 2024 | 4.5% | 4.3% | 4.4% |
| Dec 2025 | 3.7% | 3.6% | 4.1% |
| Nov 2026 | 3.9% | — | — |
Why it matters
It is the most watched number in finance: stock and bond prices around the world jump on every hint about its next move.
It sets the cost of short-term borrowing for businesses and families: the prime rate, most credit cards and many adjustable loans are priced as a margin over it.
It decides what cash earns: savings accounts, money market funds and Treasury bills pay rates close to it.
A common mistake
Myth: The federal funds rate is the rate the Fed charges banks.
In fact: That is the discount rate (officially the primary credit rate), which the Fed sets at the top of its target range and which banks rarely use. The federal funds rate is what banks charge each other; the Fed only steers it into its range.
Questions people ask
What is the federal funds rate now?
The effective federal funds rate was 3.88% on November 9, 2026, about the same as a year earlier (3.87%). The Fed announces its target range around it after each FOMC meeting.
What is the highest the federal funds rate has ever been?
The monthly average peaked at 19.1% in Jun 1981, when the Fed under Paul Volcker set out to break the inflation of the 1970s.
How does the federal funds rate affect mortgage rates?
Indirectly. 30-year mortgage rates follow the 10-year Treasury yield, which reacts to where markets think the federal funds rate is heading and to expected inflation. So a Fed cut can come with higher mortgage rates, as it did in late 2024.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- Effective federal funds rate: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, series H15/H15/RIFSPFF_N.D (Federal funds effective rate), Data Download Program. The EFFR is subject to the Terms of Use posted at newyorkfed.org. The New York Fed is not responsible for publication of the EFFR by BigCapital, does not sanction or endorse any particular republication, and has no liability for your use.
- Bank prime loan rate: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, series MPRIME; retrieved from FRED, Federal Reserve Bank of St. Louis.
- 3-month Treasury bill, secondary market rate: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, series TB3MS; retrieved from FRED, Federal Reserve Bank of St. Louis.
- S&P Composite (price, dividends, earnings, CAPE), US consumer prices and the 10-year Treasury rate: Robert J. Shiller, Online Data (shillerdata.com).
- The 4.33% in the example is an illustration; federal funds loans count interest on a 360-day year.
- This page explains a term. It is not investment advice.