(Adds details on timing, rates)
WASHINGTON, Sept 4 The U.S. Federal Reserve will
test a revised term deposit facility starting in October to let
banks who use the one-week deposits withdraw the money early if
they need it, the Fed announced on Thursday.
The Fed said it "currently anticipates" that banks would pay
a penalty for early withdrawal of 0.75 percentage point on an
annualized basis, as well as surrender any interest earned.
The term deposits are one of several tools the Fed is
testing as a way to regulate interest rates once it begins
raising rates from the near-zero level where they have been for
nearly six years.
The term deposits are a way for the Fed to siphon money from
the financial system, offering banks a small rate of interest of
around 0.26 percentage point on an annualized basis, in return
for making one-week deposits with the central bank.
The early withdrawal feature loosens the rules so that banks
can have access to their cash if they choose. The Fed said it
will conduct eight term deposit operations on a weekly basis,
starting in October and running into November.
The term deposits have proved increasingly popular in the
tests the Fed has run so far. It conducted 13 of the one-week
operations this year. The first drew $12 billion in deposits
while the final one, in July, attracted $152 billion.
(Reporting By Howard Schneider; Editing by Andrea Ricci)