First, balances at the Fed can be used to satisfy banks' legal requirement to hold reserves in proportion to the level of their own customers' transactions deposits (checking accounts, for example).4 A bank's legal reserve requirement is calculated based on the average level of deposits held by the bank's own customers over a two-week period, called the computation period, and must be satisfied by having sufficient reserves on average over a subsequent two-week period, called the maintenance period.
Second, banks can choose to hold what are called contractual clearing balances. Unlike balances held at the Fed for reserve purposes, which pay no interest, contractual clearing balances earn implicit interest in the form of earnings credits.