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  • October 18, 2023
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Overnight Deposit

A bank deposit that carries a very short term (which is the shortest amongst deposit maturities) lasting from one calendar day to the next. Accordingly, overnight deposits also carry overnight rates– interest rates that correspond to overnight terms. Overnight deposits allows lenders (overnight lenders) to earn a higher interest on their liquid assets compared to the interest rate of a settlement account.

The interest rate on an overnight deposit is usually determined as the monetary policy rate (e.g., 2.5%) minus certain percentage points (e.g., 1.5%).

The overnight deposit is a short-term investment instrument whereby commercial banks can invest their overnight excess liquidity at a certain overnight rate. Under normal conditions, the interest rate of the deposit facility creates a floor for the overnight market interest rate.


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