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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.”