What is 'Call Money'

Call money is money loaned by a bank that must be repaid on demand. Unlike a term loan, which has a set maturity and payment schedule, call money does not have to follow a fixed schedule, nor does the lender have to provide any notice of repayment. Brokerages use call money as a short-term source of funding to maintainĀ margin accounts for the benefit of their customers who wish to leverage their investments. The funds can move quickly between lenders and brokerage firms.

BREAKING DOWN 'Call Money'

For banks, call money is the most liquid asset after cash. Dealing in call money gives banks the opportunity to earn interest on surplus balance sheet funds. On the counterparty side, brokerages know that they are taking on risk by using funds that can be called at any time, so they typically use call money for transactions that will be resolved quickly. If the bank recalls the funds, then the broker can issue a margin call, which will typically result in the automatic sale of securities in a client's account (to convert the securities to cash) in order to make the repayment to the bank. Margin rates, or the interest charged on the loans used to purchase securities, vary based on the call money rate set by banks. The call money rate can be found under "Money Rates" inĀ the Wall Street Journal.

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