Suppose I were to give you $100, in return for your promise to give it back when I wanted it and pay me 0.27% annualized interest in the meanwhile. Suppose you

Suppose I were to give you $100, in return for your promise to give it back when I wanted it and pay me 0.27% annualized interest in the meanwhile. Suppose you invested this in a virtually riskless bond, perhaps a mortgage-backed security with government backing, offering 2.53% annualized interest. You’d earn $2.26 in net interest in a year. You would also bear the risk of me wanting my money back before the security matures, at a time when its price is less than you paid for it. A better example would be if you invested it by lending on an overnight inter-bank market, which is virtually risk-free, but gives you the option to stop lending at any time. You could make something like 2.38% in fed funds [1] or GC repo [2], so the argument still stands. [1] https://apps.newyorkfed.org/markets/autorates/fed%20funds https://apps.newyorkfed.org/markets/autorates/fed%20funds [2] https://www.newyorkfed.org/markets/treasury-repo-reference-rates https://www.newyorkfed.org/markets/treasury-repo-reference-r...