Fed's First Rate Hike Since 2023 Worth About $81 Million a Year to Interactive Brokers

MacroDigital Finance
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The Federal Reserve raised its target range for the federal funds rate by a quarter point on Wednesday, Sept. 16, to 3.75% to 4%, its first rate increase since July 2023. Interactive Brokers estimates that a 0.25% rise in U.S. dollar interest rates adds about $81 million a year to net interest income, if maturing investments roll over at the new, higher rates, according to its latest quarterly filing. That $81 million amounts to about 2% of annualized net interest income and about 1% of total net revenues, and a corresponding quarter-point rise in non-U.S. dollar benchmark rates would add an additional $38 million a year. Net interest income, the broker's biggest revenue line, totaled $1.06 billion in the second quarter, more than half of the company's $1.9 billion in total net revenues, and grew 23% year over year even as the average federal funds effective rate fell to 3.63% from 4.33%, driven by balance growth. Average customer credit balances climbed by $41.7 billion year over year, average margin loans grew by $35.7 billion, and average segregated cash and securities increased by $19 billion, a pace that works out to nearly $790 million a year, almost ten times what one quarter-point hike is expected to add.

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Fed's quarter-point rate hike adds about $81 million a year to Interactive Brokers' net interest income as investments roll over at higher rates.

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