Fed Boosts Interest Rates Paid to Banks on Reserves

WASHINGTON – The Federal Reserve, still battling a severe credit crisis, says it will pay a higher interest rate to commercial banks on their reserves.

The Fed said it was altering the formulas it was using both for reserves the banks are required to keep on deposit at the Fed, and on excess reserves that banks choose to leave at the Fed.

The changes will provide slightly higher returns to banks for these funds, providing a boost to their earnings.