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Customer Interest Rate Mechanics

Customer Interest rate mechanics define how Customer Interest is calculated, accrued, settled, and paid under the DDM Program. This section explains how Customer Interest is derived from Program Rates and receive-side TACF structures and how those rates are applied across DDM participation options.

Customer Interest

Customer Interest represents the portion of the TACF Rate Monthly Amount attributable to Customers whose funds have been allocated to a Receiving Institution under the DDM Program. The TACF Rate Monthly Amount consists of (i) the Monthly Customer Interest Amount (other than any Supplemental Interest Amount), (ii) the R&T Monthly Fee, and (iii) the Sending Institution Monthly Fee, if applicable. Customer Interest rates are established by the Sending Institution in accordance with the applicable Program Rate terms.

ComponentTechnical Definition
TACF RateThe fixed or variable Total All-In-Cost-of-Funds (TACF) Rate as agreed between R&T and a Receiving Institution in a FR&F Addendum or Services Addendum for the Receiving Institution receiving deposits under the DDM Program.
R&T FeeThe fee payable by the Receiving Institution to R&T under the applicable FR&F Addendum or Services Addendum for receiving deposits under the DDM Program, retained by R&T for program administration services.
Program RateThe rate agreed between R&T and the Sending Institution in a FR&F Addendum or Services Addendum for the Sending Institution sending deposits into the DDM Program.
Sending Institution FeesThe fees payable to the Sending Institution under the FR&F Addendum or Services Addendum. Calculated as the difference between the Program Rate and Customer Rate amount, retained by the Sending Institution as fee income/revenue.

Systematic Application of Rates

During the Daily Settlement Cycle, the DDM Program applies these rates to calculate the daily accrual.

Daily Accrual Logic

The DDM Program calculates daily accruals based upon the following rates:

  • The Program Rate set for the Sending Institution
  • The TACF Rate set for the Receiving Institution
  • The Customer Interest Rate set for the Sending Institution’s customer

100% Reciprocal vs. Reciprocal Plus Rates

The participation option dictates how the TACF rate is applied to specific receive-side balance buckets:

  • 100% Reciprocal Balance: Typically carries a floating TACF rate based on the DDM Program Rate.

  • Reciprocal Plus Balance: The "Plus" portion of the balance (the supplement) may carry a differentiated or fixed TACF rate separate from the 100% reciprocal balance.

→ See: Customer Interest Rate Management for additional information regarding Program Rates, Customer Interest related rate management considerations.

Customer Rate Setting

A Sending Institution can set a customer interest rate to be equal to, less than or greater than the agreed upon Program Rate. A customer interest rate can be flat, tiered or tied to an index either with or without a variance.

Customer Rate > Program Rate

When the Sending Institution sets a customer interest rate that is greater than the agreed upon Program Rate (creating an interest shortfall):

  • The portion of interest greater than the Program Rate amount (an amount equal to the Supplemental Interest) is owed to the Receiving Institution and is settled through the DDM Program by the Sending Institution.

  • This ensures that the Receiving Institution is made whole for the additional customer interest amount associated with the allocated deposits.

Customer Rate < Program Rate (Sending Institution Fee Retention)

When the Sending Institution pays a Customer Interest Rate that is less than the agreed upon Program Rate:

  • The Sending Institution retains the difference as a fee income/revenue (being the Sending Institution Fee).

Customer Rate = Program Rate (Sending Institution Fee Retention)

When the Sending Institution pays a Customer Interest Rate that is equal to the agreed upon Program Rate:

  • The Sending Institution neither retains a difference as a fee income/revenue nor is responsible for owing the difference to Receiving Institutions

What's Next

Updated 9 days ago

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