The Federal Reserve raised its target range for the federal funds rate by a quarter point on Wednesday, September 16, to 3.75% to 4%, marking the central bank's first increase since July 2023. For Interactive Brokers, this move translates to an estimated $81 million in additional net interest income per year, assuming maturing investments roll over at the new rates.
This figure represents a modest boost relative to the company's overall scale. Net interest income is Interactive Brokers' largest revenue source, totaling $1.06 billion in the second quarter, which accounted for more than half of its $1.9 billion in total net revenues. The $81 million increase equates to roughly 2% of annualized net interest income and about 1% of total net revenues. A corresponding quarter-point rise in non-U.S. dollar benchmark rates would add another $38 million annually, but the Fed's decision currently affects only U.S. dollar rates.
The recent rate hike reverses a trend that has pressured the company's margins for two years. In the second quarter, net interest income rose 23% year over year, a gain of $197 million, even though the average federal funds effective rate fell to 3.63% from 4.33% a year earlier. This growth was driven by customer balances rather than rates. Average customer credit balances climbed by $41.7 billion, average margin loans grew by $35.7 billion, and average segregated cash and securities increased by $19 billion over the same period.
Falling rates had previously narrowed the company's net interest margin to 1.93% from 2.07%. Year-over-year growth in net interest income slowed for two consecutive quarters as benchmarks declined, dropping from 21% in the third quarter of 2025 to 20% in the fourth, and then to 17% in the first quarter of this year. The second quarter's 23% growth broke that pattern, with balance expansion outweighing the negative impact of lower rates.
If the current pace of balance growth continues for four quarters, it would generate nearly $790 million in annual net interest income, almost ten times the estimated benefit of a single quarter-point rate hike. The shift in rate direction may now allow the rate component of the business to work in tandem with balance growth rather than against it.
Investors have priced in this trajectory. Interactive Brokers stock is up approximately 37% in 2026, significantly outperforming the S&P 500. At approximately $87 per share, the stock trades at about 27 times next year's expected earnings. This valuation suggests the market is betting on continued balance growth rather than immediate gains from the Fed's policy change.