Term Federal Funds

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DEFINITION

Balances purchased in Federal Reserve accounts for more than a single day. Term federal funds usually have a maximum term of 90 days. Banks purchase these funds when their borrowing needs will last for several days.

INVESTOPEDIA EXPLAINS

Banks also purchase term federal funds in order to lock in the current short-term interest rate in a rising rate environment. They resemble overnight federal funds in that they are not subject to reserve requirements. For this reason, they are often purchased in lieu of other comparable instruments with similar maturities.


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