---
title: "Noninterest-Bearing Deposits: definition, formula, and thresholds"
description: "Noninterest-bearing deposits, primarily demand deposit accounts (checking), are balances on which a bank pays no interest. They are the cheapest, stickiest funding a bank can have and a key driver of net interest margin."
canonical_url: https://www.bankregreports.com/glossary/demand-deposits/
source: BankRegReports
category: "Liquidity & Balance Sheet"
units: "$"
schedule: "Schedule RC-E"
---

# Noninterest-Bearing Deposits

> Noninterest-bearing deposits, primarily demand deposit accounts (checking), are balances on which a bank pays no interest. They are the cheapest, stickiest funding a bank can have and a key driver of net interest margin.

## Formula

```
Noninterest-Bearing Deposits = Demand deposits and other transaction accounts paying no interest
```

Schedule RC-E splits deposits into noninterest-bearing and interest-bearing. The noninterest-bearing share (largely business operating accounts) funds earning assets at zero cost, lifting margin above what the rate spread alone would produce.

## Why it matters

A large noninterest-bearing base is one of banking's most valuable assets: it insulates the bank from rising rates, since this funding costs nothing regardless of the rate environment. It is the difference between a franchise that thrives when rates rise and one that gets squeezed.

## How to read it

Read noninterest-bearing deposits as a share of total deposits. A high, stable share signals strong operating relationships and pricing power; a shrinking share, as customers move idle cash into interest-bearing accounts (a 'deposit mix shift'), is an early warning of margin pressure.

## Thresholds

| Range | Reading | What it means |
|---|---|---|
| ≥ 30% of deposits | Strong | Large free-funding base; margin well insulated from rates. |
| 20-30% | Adequate | Solid noninterest-bearing share. |
| 10-20% | Watch | Limited free funding; margin more rate-sensitive. |
| < 10% | Concern | Thin free-funding base; highly exposed to rising deposit costs. |


## Worked example

A business bank where 35% of deposits sit in noninterest-bearing operating accounts funds more than a third of its deposit base at zero cost. As rates rose in 2023, that base let it hold net interest margin steady while consumer-funded peers watched theirs erode.

## Questions

### Why are noninterest-bearing deposits so valuable?

They fund loans and securities at zero interest cost, so they directly widen net interest margin and shield the bank from rising rates. A deep noninterest-bearing base is a durable competitive advantage.

### What is a deposit mix shift?

When depositors move balances out of noninterest-bearing accounts into interest-bearing savings or CDs to capture higher rates, the funding mix shifts and the bank's cost of funds rises, squeezing margin even if total deposits are unchanged.

## Sources

- [FFIEC Call Report Schedule RC-E (Deposit Liabilities)](https://www.ffiec.gov/sites/default/files/data/reporting-forms/FFIEC031_FFIEC041_202606_i.pdf) (PDF)

## Related metrics

- [Total Deposits](https://www.bankregreports.com/glossary/total-deposits/): Total deposits is the sum of all money customers have placed with a bank (checking, savings, money market, and time deposits) across domestic and foreign offices. It is a bank's primary and cheapest source of funding.
- [Core Deposit Ratio](https://www.bankregreports.com/glossary/core-deposit-ratio/): The Core Deposit Ratio measures 'core' deposits (total deposits less time deposits over $250,000 and less brokered deposits of $250,000 or less) as a percentage of total deposits. Core deposits are the most stable, lowest-cost funding source available to a bank.
- [Cost of Funds](https://www.bankregreports.com/glossary/cost-of-funds/): Cost of funds is the interest rate a bank pays, on average, for the money it lends and invests: annualized interest expense divided by average funding from deposits and borrowings. It is the bank's own cost of money and the expense side of net interest margin.
- [Time Deposits (CDs)](https://www.bankregreports.com/glossary/time-deposits/): Time deposits are certificates of deposit (CDs) with a fixed maturity and rate. Smaller, retail CDs are reasonably stable; large 'jumbo' CDs above the insurance limit are more rate-sensitive and treated as a less reliable funding source.

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