The CILs are allowed to collect interest on federal funds, but if there is interest, the money isn’t being applied to its purpose, so that is discouraged. The expectation is that the money passes through just in time to pay the bills. Of course this is to the direct grantees (Part C funds for Centers), and not the sub-recipients (Part B Centers and the SILC).
Here is the regulation: 45 CFR 75.305 Payment. (b)(1) states: (1) … Advance payments to a non-Federal entity must be limited to the minimum amounts needed and be timed to be in accordance with the actual, immediate cash requirements of the non-Federal entity in carrying out the purpose of the approved program or project. The timing and amount of advance payments must be as close as is administratively feasible to the actual disbursements by the non-Federal entity for direct program or project costs and the proportionate share of any allowable indirect costs.
That same section continues with (5) Use of resources before requesting cash advance payments. To the extent available, the non-Federal entity must disburse funds available from program income (including repayments to a revolving fund), rebates, refunds, contract settlements, audit recoveries, and interest earned on such funds before requesting additional cash payments.
This makes it clear that any interest earned is treated in the same way as program income, and must be used for the same program that generated the funds. This would be true of both subchapter B and subchapter C funds, for both CILs and SILCs. In fact, the requirement is that the earned amount is spent before you draw down more funds from that source.
45 CFR 75.302(b)(3) says Records that identify adequately the source and application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation.