Which best describes how interest on reserve balances serves as a reservation rate? Because interest on reserve balances is a risk-free option, banks will always seek a higher return elsewhere. Because the Fed offers several interest rates, banks will choose the highest rate, which is interest on reserve balances. Because interest on reserve balances is a risk-free option, banks should not be willing to lend their funds for less than they can earn on their reserve balances. Because the interest on reserve balances rate is set below the federal funds rate, banks will borrow at the interest on reserve balances rate and lend these out at the federal funds rate, which will raise the interest on reserve balances rate