Term Deposit Facility Frequently Asked Questions

If your question is not answered by the information provided within these FAQs or the Term Deposit Facility page, please contact your District's Term Deposit Facility District Contact or the Federal Reserve's Support Center.

Background and Eligibility

1. Why was the Term Deposit Facility established?

   The Term Deposit Facility was established to facilitate the conduct of monetary policy. For additional information, please refer to the Term Deposit Facility Overview (PDF).

2. How will the Term Deposit Facility operate under an auction format?

   The Term Deposit Facility Overview (PDF) provides background information on how the Term Deposit Facility will operate under an auction format. A Step-by-Step Guide (PDF) to using the Term Deposit Facility application to participate in auction operations is also available.

3. How will the Term Deposit Facility operate under a fixed-rate format?

   The Term Deposit Facility Overview (PDF) provides background information on how the Term Deposit Facility will operate under a fixed-rate format. A Step-by-Step Guide (PDF) to using the Term Deposit Facility application to participate in fixed-rate operations is also available.

4. How will the Term Deposit Facility operate under a floating-rate format?

   The Term Deposit Facility Overview (PDF) provides background information on how the Term Deposit Facility will operate under a floating-rate format. A Step-by-Step Guide (PDF) to using the Term Deposit Facility application to participate in floating-rate operations is also available.

5. What is an eligible institution?

   Eligible institutions include depository institutions defined in section 19(b)(1)(A) of the Federal Reserve Act and Regulation D. For additional information, please refer to the Eligibility and Setup section of the Term Deposit Facility Overview (PDF).

6. Which institutions can participate in the Term Deposit Facility?

   Only eligible institutions that have completed the steps outlined on the Term Deposit Facility Setup page can participate in the Term Deposit Facility.

7. Is participation in the Term Deposit Facility required?

   No. Undertaking the steps outlined on the Term Deposit Facility Setup page to become a Term Deposit Facility participant is completely voluntary. After an eligible institution is accepted by the Federal Reserve as a Term Deposit Facility participant, it is not required to submit a tender for each operation of the Term Deposit Facility.

8. How are term deposits different from balances maintained in a master account at a Federal Reserve Bank?

   Unlike funds placed in a master account, term deposits cannot be used to satisfy reserve balance requirements or clear payments.

   Term deposits will earn interest at a rate that will either be determined through a competitive single-price auction mechanism or as specified in the operation announcement. In contrast, balances maintained in a master account earn interest at the rates paid on balances maintained to satisfy reserve balance requirements and excess balances. As announced (Off-site) on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.

9. Must an institution have a master account at a Federal Reserve Bank to participate in the Term Deposit Facility?

   No. An institution that wants to participate in the Term Deposit Facility must designate a settlement account for term deposit transactions (settlements, maturities, and interest payments). The designated settlement account can be either the institution's own master account or its correspondent's master account. For additional information, please refer to the Term Deposit Facility Setup page.

10. How are term deposits different from balances maintained in an excess balance account?

    Term deposits have a fixed maturity. In contrast, funds held in an excess balance account, which is managed by an agent on behalf of the participants, do not have a fixed maturity. A participant may instruct its agent to transfer funds (via Fedwire^® Funds) out of its excess balance account at any time during a Fedwire funds transfer business day.

    Term deposits will earn interest at a rate that will either be determined through a competitive single-price auction mechanism or as specified in the operation announcement. The interest earned on term deposits is paid by the Reserve Bank to the designated settlement account of the Term Deposit Facility participant. In contrast, aggregate balances held in an excess balance account will earn interest at the excess balance rate set by the Federal Reserve Board. The interest earned on aggregate account balances held in an excess balance account is credited to the excess balance account. A participant in an excess balance account and the agent must agree on the method for disbursing interest attributable to the participant.

    For additional information on excess balance accounts, please refer to the Excess Balance Account page.

Setup Steps to Participate in the Term Deposit Facility

1. What steps must an institution undertake to be able to participate in the Term Deposit Facility?

   Please refer to the steps outlined on the Term Deposit Facility Setup page.

2. How long will it take to get access to the Term Deposit Facility application after completing the steps outlined on the Term Deposit Facility Setup page?

   The process and time required to complete the setup steps to participate in the Term Deposit Facility will vary by institution. The typical time from submission of the necessary forms, requests and agreements to receiving credentials and being ready to participate is between 7 and 10 business days provided that all required materials are complete and accurate. Errors or omissions can delay the process.

3. Does Section 2.4 of the Term Deposit Agreement (stating that the institution's governing body must authorize the execution of the Agreement) mean that a new board of directors resolution is necessary to participate in the Term Deposit Facility?

   The Federal Reserve would not require a new certificate of resolution if your institution has already submitted a certificate of resolution authorizing your institution to maintain an account with or obtain services from the Reserve Banks. If your institution does not currently have such resolution on file with a Reserve Bank, however, a resolution and official authorization list must be submitted to the Reserve Banks before you can participate in the Term Deposit Facility. Refer to the Accounting Services Forms for template resolutions.

Interest Earnings Calculations and Payments, Settlements, and Maturities

1. What interest rate will be paid on term deposits awarded through an auction format?

   The interest rate paid on term deposits awarded through an auction format will be determined by a single-price auction mechanism. For additional information, please refer to the Determining Awards section of the Term Deposit Facility Overview (PDF).

2. What interest rate will be paid on term deposits awarded through a fixed-rate format?

   The interest rate paid on term deposits awarded through a fixed-rate format will be announced by the Federal Reserve Board in advance of each operation. These announcements are available on the Board of Governors' website (Off-site).

3. What interest rate will be paid on term deposits awarded through a floating-rate format?

   The interest rate paid on term deposits awarded through a floating-rate format will be the operation effective interest rate, which is determined by the average of the daily effective rates over the term of the instrument. The daily effective rate is the sum of the value of the reference rate for that day and the spread rate for the operation.

   Currently, floating-rate term deposits are being offered with a reference rate equal to the interest rate paid on excess reserves (IOER). IORR and IOER rates effective on a given day are reported on the Interest on Required Balances and Excess Balances" (Off-site) page on the Board of Governors' website and are available in the Policy Rates Data Download Program (Off-site).

4. Where can a participant view the daily effective rate for its term deposit?

   As shown in the Step-by-Step Guide (PDF), a participant can view the daily effective rate in the Term Deposit Facility application beginning on the settlement date. The participant will be able to view the effective rate, reference rate, and spread rate for each day of the term of the facility that has passed. (Effective rate = Reference rate + Spread rate).

5. Where can I find information on any changes in the reference rate, such as the interest rate paid on excess reserves (IOER)?

   IORR and IOER effective rates on a given day are reported on the Interest on Required Balances and Excess Balances" (Off-site) page on the Board of Governors' website and are available in the Policy Rates Data Download Program (Off-site).

6. How is the interest rate used to calculate the interest payment on a term deposit?

   Interest payments are calculated using the formula for simple interest on a 360-day basis where rate is the interest rate established for that Term Deposit Facility operation and term is the number of calendar days the term deposit is outstanding, as shown below:

   Interest payment = amount of term deposit * [(rate/100)*(term/360)]

7. How and when will a participant be debited for term deposit settlement?

   The designated settlement account of the participant that is awarded a term deposit will be debited for term deposit settlement, under the Payment System Risk Policy posting rules (Off-site), after the close of the Fedwire^® Funds Transfer service on the announced settlement date of the operation. The designated settlement account must be either the participant’s master account or the master account of its correspondent.

8. How and when will a participant be credited for maturing term deposits?

   The designated settlement account of the participant with a maturing term deposit will be credited for the term deposit, under the Payment System Risk Policy posting rules (Off-site), at 8:30 a.m. ET on the announced maturity date. The designated settlement account will be either the participant’s master account or the master account of its correspondent.

9. How and when will interest payments be credited for maturing term deposits?

   Interest on term deposits will be credited to the participant’s designated settlement account, under the Payment System Risk Policy posting rules (Off-site), at 8:30 a.m. ET on the maturity date and specified interim interest payment dates. The designated settlement account will be either the participant’s master account or the master account of its correspondent.

10. Can term deposits be withdrawn prior to maturity?

    The terms and conditions of each term deposit offering will be included in the offering announcement for each operation. The offering announcement will indicate whether the term deposits being offered include an early withdrawal feature that will allow depository institutions to obtain a return of funds prior to the maturity date, subject to an early withdrawal penalty. The offering announcement will specify the penalty rate that will be used to determine the penalty for early withdrawal. For additional information on early withdrawal, please refer to the FAQs on Early Withdrawal of Term Deposits.

11. Will a participant earn interest on term deposits withdrawn prior to maturity?

    No, a participant that withdraws its term deposit prior to maturity forfeits all interest for the term deposit. For additional information on early withdrawal, please refer to the FAQs on Early Withdrawal of Term Deposits.

Term Deposits as Collateral

1. Can term deposits collateralize advances from the Federal Reserve’s discount window?

   Yes. Term deposits will automatically be pledged as collateral to Federal Reserve Banks and so can be used to secure discount window advances if the borrower has filed the appropriate discount window borrowing documents with its local Reserve Bank. For more information on the documents that must be filed in order to borrow at the discount window, please refer to the Borrowing Section (Off-site) of the Discount Window website.

2. Will term deposits appear on the Statement of Collateral Holdings for Term Deposit Facility participants that receive such statements?

   Yes. Term deposits will be identified on the Statement of Collateral Holdings, with a category code of 170 and an “Identifier Description” of “Term Deposit Facility Reserves.” If participants do not currently receive a Statement of Collateral Holdings, they can contact their local Reserve Bank (Off-site) to elect to receive the statement.

3. Will term deposits be pledged as collateral to Federal Reserve Banks under the Federal Reserve’s Payment System Risk Policy?

   Yes. Term deposits will automatically be pledged as collateral to Federal Reserve Banks for payment system risk purposes, including reducing or offsetting daylight overdraft fees. Additional information on acceptable collateral for payment system risk purposes is available here (Off-site).

4. When will term deposits be pledged as collateral to Federal Reserve Banks and so can be used to secure discount window advances and for payment system risk purposes?

   Term deposits will automatically be pledged as collateral to Federal Reserve Banks and so can be used to secure discount window advances and for payment system risk purposes at 6:30 p.m. ET on the settlement date for a Term Deposit Facility operation. On the maturity date, the term deposit ceases to be pledged as collateral at 8:30 a.m. ET.

5. Can term deposits that are securing an outstanding discount window advance or are necessary to satisfy a collateral requirement established by the Reserve Bank be withdrawn early if the term deposits include an early withdrawal feature?

   No.

Term Deposit Facility Procedures, Policies, and Reporting

1. Can a Term Deposit Facility participant submit a tender in both the competitive portion and the noncompetitive portion of an auction offering?

   No. A Term Deposit Facility participant may submit a tender to either the competitive portion or the noncompetitive portion of an offering, but not to both.

2. Will tenders be accepted by email or by phone?

   No. All tenders must be submitted through the Term Deposit Facility application.

3. Can a Term Deposit Facility participant modify or delete a tender after it has been submitted?

   A Term Deposit Facility participant can modify or delete a tender in the Term Deposit Facility application until the closing time for submitting tenders. After the closing time for submitting tenders has passed, a Term Deposit Facility participant can no longer modify or delete a tender and the Federal Reserve Banks will not honor any such request.

4. Can a winning Term Deposit Facility participant refuse to accept an award in a Term Deposit Facility operation?

   No. The Term Deposit Facility participant shall fund all term deposits that have been awarded to it on the Settlement Date. (See section 3.2 of the Term Deposit Agreement (PDF)).

5. Will U.S. branches and agencies of foreign banks submit tenders individually or on a consolidated basis through a single office?

   Each U.S. branch or agency of a foreign bank must submit its own tender individually in a Term Deposit Facility operation.

6. If a Term Deposit Facility participant is involved in a merger or acquisition while it has a term deposit at its Reserve Bank, what happens to that term deposit?

   A Term Deposit Facility participant that will be involved in a merger or an acquisition should contact its local Reserve Bank at the earliest possible opportunity to discuss the disposition of any outstanding term deposits following the merger or acquisition. Generally, the proceeds of the maturing term deposit and the interest will be credited to the designated settlement account of the surviving institution of a merger when the term deposit matures.

7. Are term deposits in the Term Deposit Facility reportable on the Report of Transaction Accounts, Other Deposits and Vault Cash (FR 2900)?

   No. Term deposits should be treated as balances due from a Federal Reserve Bank for the purposes of FR 2900 reporting. Accordingly, term deposits should be excluded from “Demand Balances Due from Depository Institutions in the U.S.” (Item B.1).

8. What risk weight is assigned to term deposits for purposes of computing risk-weighted assets under the risk-based capital rules?

   All claims on the Federal Reserve, including term deposits, are assigned a risk weight of zero under the risk-based capital rules.

Information on Term Deposit Operations

1. Where will Term Deposit Facility operation announcements be posted?

   Term Deposit Facility operation announcements will be posted on the Board of Governors' website (Off-site).

2. How will Term Deposit Facility participants view operation results?

   Participants in Term Deposit Facility operations will be able to view their awards in the Term Deposit Facility application (Off-site). For additional information, please refer to the View Results section of the Term Deposit Facility Overview (PDF) (An operation with an auction format will be identified with an "A" in the operation ID. Operations with a fixed-rate format or a floating-rate format will be identified with an "F" in the operation ID.).

   Public press releases will provide summary results information for all Term Deposit Facility operations. These results documents will be posted to the Board of Governors’ website (Off-site) the day after the operation.

3. Where can I find information about past operations?

   Information on past operations is available on the Board of Governors' website (Off-site).

4. Will the Federal Reserve Bank send a statement to Term Deposit Facility participants showing term deposit activity?

   No. Term Deposit Facility participants can view information on their term deposits in the Term Deposit Facility application. The Federal Reserve Banks will not send statements detailing term deposits maintained or interest earned on term deposits.

5. Where can a Term Deposit Facility participant find information on term deposit transactions in the Account Management Information (AMI) system?

   Information on term deposit settlements, maturities, and interest payments will be included in the “All Other” subtotal; however, the transactions will be identified with unique transactions codes and descriptions. The term deposit transactions can be viewed during the day using the AMI drill-down and search features.

6. Can a Term Deposit Facility participant view term deposit activity via the FedLine® access solution?

   No. A Term Deposit Facility participant must access the Term Deposit Facility application using the link on the Term Deposit Facility page or by pasting the address into a browser window. The Term Deposit Facility application cannot be accessed via the FedLine access solution.

Using a Correspondent for Term Deposit Transactions Settlement

1. Can a Term Deposit Facility participant use a correspondent to settle its term deposit transactions?

   Yes. A Term Deposit Facility participant may designate its correspondent’s master account as its settlement account for term deposit transactions (settlements, maturities, and interest payments) by submitting the Transaction and Service Fee Settlement Authorization form of Operating Circular 1.

2. Does a Term Deposit Facility participant need to submit a new Transaction and Service Fee Settlement Authorization form of Operating Circular 1 if it already has a correspondent and wants to settle term deposit transactions through that correspondent?

   Yes. A Term Deposit Facility participant must submit a new Transaction and Service Fee Settlement Authorization form of Operating Circular 1 specifying the TDF Transaction Code category. Both the Term Deposit Facility participant and its correspondent must sign a new form that expressly indicates that term deposit transactions will settle to the correspondent’s master account. Please refer to the steps outlined on the Term Deposit Facility Setup page for additional information.

3. Will a correspondent be able to view the awards of its respondents?

   When a respondent participates in a TDF operation, the correspondent will not receive any notice from the Federal Reserve providing information about the awards of its respondents. The correspondent and respondent are expected to communicate about such transactions. However, the correspondent can view the amount of term deposits settling through its master account on the settlement date in AMI during the day and on its end-of-day Statement of Account. Similarly, it can view the amount maturing on the maturity date.

4. What steps must a Term Deposit Facility participant take if it terminates its relationship with its correspondent while it still holds term deposits?

   If a Term Deposit Facility participant designated a correspondent’s master account as its settlement account for term deposit transactions and this relationship is terminated while the participant still holds outstanding term deposits, the participant must either open a master account at a Reserve Bank or find a new correspondent for settling term deposit transactions before the term deposits mature. In both cases, it must submit a new Transaction and Service Fee Settlement Authorization form of Operating Circular 1 to designate settlement to the new correspondent’s master account or to the participant’s own master account.

Early Withdrawal Feature

1. Can term deposits be withdrawn prior to maturity?

   The terms and conditions of each term deposit offering will be included in the offering announcement for each operation. The offering announcement will indicate whether the term deposits being offered include an early withdrawal feature that will allow depository institutions to obtain a return of funds prior to the maturity date, subject to an early withdrawal penalty. The offering announcement will specify the penalty rate that will be used to determine the penalty for early withdrawal.

2. Will a participant face a penalty for withdrawing term deposits prior to maturity?

   The offering announcement will indicate whether the term deposits being offered include an early withdrawal feature and, if so, the associated early withdrawal penalty. The Federal Reserve currently anticipates that the early withdrawal penalty will include the forfeiture of all interest on the term deposit plus an additional fee of 75 basis points at an annual rate applied to the principal over the entire term of the deposit.

   The penalty will be calculated using the formula for simple interest on a 360-day basis.

   For a term deposit, the penalty fee for early withdrawal at any point in the life of the term deposit would be calculated using the following formula:

   Penalty fee = amount of term deposit *[(penalty rate/100)*(term/360)]

   For example, the penalty fee for a $10 billion seven-day term deposit would be calculated as follows:

   Penalty fee = $10 billion *[(penalty rate/100)*(7/360)]

3. Will a participant earn interest on term deposits withdrawn prior to maturity?

   No, if a participant that withdraws its term deposit prior to maturity, the participant forfeits all interest for the term deposit.

4. Who is authorized to request an early withdrawal?

   Individuals designated as either a TDF Subscriber with an active credential or an authorized official on the Official Authorization List (OAL) for the participating DI may request an early withdrawal of a term deposit that has been offered with such a feature.

5. What steps must a participant take to request an early withdrawal?

   An individual designated as either a TDF Subscriber with an active credential or an authorized official on the Official Authorization List (OAL) must call the participating DI’s local Reserve Bank TDF District Contact to request an early withdrawal.

6. Can term deposits be partially withdrawn?

   No, term deposits may only be withdrawn in full.

7. Can term deposits that are securing an outstanding discount window advance or are necessary to satisfy a collateral requirement established by the Reserve Bank be withdrawn early if the term deposits include an early withdrawal feature?

   No.

8. How are term deposits offered with an early withdrawal feature treated in the U.S. rulemaking on the “Liquidity Coverage Ratio: Liquidity Risk Measurement Standards” (79 FR 61440)?

   The U.S. rule defines “Reserve Bank balances,” that can be included without limit in a DI’s stock of high quality liquid assets (HQLA), to include: “ “Term deposits” of the [BANK] as defined in section 204.2(dd) of Regulation D (12 CFR 204.2(dd)) if such term deposits are offered and maintained pursuant to terms and conditions that: (i) Explicitly and contractually permit such term deposits to be withdrawn upon demand prior to the expiration of the term.”

   As noted in the preamble to the final rulemaking, term deposits that include an early withdrawal feature that allows depository institutions to obtain a return of funds prior to the deposit maturity date, subject to an early withdrawal penalty, would be included in “Reserve Bank balances,” because such term deposits would be explicitly and contractually repayable on notice. The amount associated with a term deposit that would be included as “Reserve Bank balances” is equal to the amount that would be received upon withdrawal of such a term deposit. Those term deposits that do not include this early withdrawal feature would not be included in “Reserve Bank balances.” The terms and conditions for each term deposit offering specify whether the term deposits being offered include an early withdrawal feature.