Rato and more than 80 others face possible charges of corporate crimes over allegations that they spent a total of €15 million with secret company credit cards when they worked at Caja Madrid and the Bankia group.
The 65-year-old along with two other former executives was questioned by a judge investigating Bankia, the group whose near-collapse sparked a €41-billion ($52 billion) bailout for Spain's financial sector.
The three were met by yells of "Thieves!" from protesters near the court who say they lost their savings when Bankia nearly went bankrupt and had to be rescued in 2012.
In a closed-door hearing, judge Fernando Andreu ordered Rato to pay a €3-million bail within three days or have his assets frozen, a judicial source said.
The judge ordered a second suspect, Miguel Blesa, to pay a bond of €16 million, the judicial source said. Blesa was formerly head of Caja Madrid, which later became part of Bankia.
Audit documents submitted by prosecutors to the court detailed a total of €15.2 million of suspect spending with the credit cards.
Prosecutors said the credit cards were used for personal purchases with media reports saying the money was spent on safaris, meals at luxury restaurants, art, clothing and massive cash withdrawals.
Blesa and Rato have denied any wrongdoing and said the credit cards formed part of their remuneration for their jobs and were for discretionary spending, the source said.
The judge also questioned Caja Madrid's former financial director Ildefonso Sanchez. He said he introduced the system of credit cards and they were only used for professional entertaining expenses, another source said.
The prosecution's audit covered more than 80 users of the credit cards — many of them connected to politics, trade unions and even the royal family.
A former finance minister, Rato served from 2004 to 2007 as managing director of the International Monetary Fund, the worldwide lender that played a key role in tackling the eurozone debt crisis.
He served as chief executive of Caja Madrid from 2010 and later that year moved to the top post at Bankia until shortly before it was rescued by the Spanish government in 2012.
The scandal has fuelled indignation in Spain, where one in four workers are unemployed, ahead of a general election expected by the end of next year.
The probe has also embarrassed Prime Minister Mariano Rajoy's conservative Popular Party, of which Rato is a prominent member.
Rajoy defended himself in parliament on Wednesday, saying the government had "done everything it should do" to aid the investigation.
According to Spanish media reports, Blesa used his card to pay for safaris in Africa and to buy wine worth €10,000.
Prosecutors accuse Rato of improperly spending €99,000, of which he has repaid nearly €55,000. Media citing court documents said he spent thousands on nightclubs and drinks.
The case has sparked a string of high-profile resignations, including that of Rafael Spottorno, an adviser to King Felipe VI who was formerly a manager at a charitable foundation run by Caja Madrid.
In July 2012, Rato and nearly three dozen other former Bankia executives appeared in court in a criminal probe into Bankia's doomed 2011 stock listing
They denied wrongdoing in that case, which is ongoing.