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

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%. The vote was unanimous, and the new range went into effect Thursday.

It is the central bank's first rate increase since July 2023. As late as December, the Fed was still cutting.

Interactive Brokers (NASDAQ:IBKR) can attach a dollar figure to what that means. The automated global broker earns interest on its customers' idle cash and margin loans. And its latest quarterly filing lays out what a move like this is worth: 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.

Compared with what the business has been doing on its own, though, that's a more modest push than you might think.

Image source: The Motley Fool.

Interest on other people's cash

Net interest income is Interactive Brokers' biggest revenue line. It totaled $1.06 billion in the second quarter, more than half of the company's $1.9 billion in total net revenues.

And an unusually high share of that money turns into profit. Net income amounted to $1.3 billion in the second quarter (about 70% of total net revenues), up 33% year over year.

The company invests the cash its customers keep uninvested and pays interest back on qualifying balances. It also charges interest on margin loans, priced at a benchmark rate plus a spread. When benchmark rates move, both sides move with them, and the $81 million is the company's estimate of the net impact.

The filing also says a corresponding quarter-point rise in non-U.S. dollar benchmark rates would add an additional $38 million a year. Of course, the Fed's decision covers just dollar rates, so for the moment, only the $81 million applies.

That $81 million amounts to about 2% of annualized net interest income, and about 1% of total net revenues. In other words, one hike hardly alters the revenue picture by itself.

Net interest income grew as rates fell

The bigger driver in this business, I would say, is balance growth. Showing how much customers' money matters, net interest income was up 23% year over year in the second quarter (a $197 million gain) even though the average federal funds effective rate fell to 3.63% from 4.33% a year before.

Falling rates narrowed the company's net interest margin to 1.93% from 2.07% over the same period. Net interest income grew all the same, because customers kept bringing money. 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.

The falling rates did leave a mark, though. Year-over-year growth in net interest income slowed for two quarters in a row as benchmarks fell -- from 21% in the third quarter of 2025 to 20% in the fourth, then 17% in this year's first quarter. The second quarter's 23% broke that trend, with balance growth more than making up for the rate decreases.

How much does the hike matter?

Balance growth, even net of falling rates, helped to produce a $197 million increase in quarterly net interest income over the last year. Maintained for four quarters, that pace works out to nearly $790 million a year -- almost ten times what the company expects one quarter-point hike to add. Put another way, the money customers keep bringing to Interactive Brokers has been worth much more to it than anything the Fed just did.

But the hike does change which way the rate lever points. For the last two years, decreasing benchmark rates were a drag this business needed to outgrow, and it did. Now rates are moving the other way. If they stay here or keep increasing, the rate side of the equation could finally work with the balance growth rather than against it.

Investors have not been waiting for the Fed, either. The growth stock is up about 37% in 2026, far ahead of the S&P 500 (SNPINDEX:^GSPC), and at about $87 as of this writing, it trades at about 27 times next year's expected earnings.

That valuation is arguably a bet on the balance growth continuing -- not on the Fed.

No one is paying a price-to-earnings multiple like that for a quarter point.

In the end, the $81 million is the first push the Fed has given this business in more than three years, and it lands on the company's largest revenue line. But I think the number worth tracking is the one that grew 23% while rates were falling.

The quarter point is nice to have. The balances have been doing most of the work.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Interactive Brokers Group. The Motley Fool recommends the following options: long January 2027 $43.75 calls on Interactive Brokers Group and short January 2027 $46.25 calls on Interactive Brokers Group. The Motley Fool has a disclosure policy.