Liquidity & Balance Sheet
Interest-Bearing Deposits
Also known as IB Deposits
Interest-bearing deposits are all deposits on which a bank pays interest: savings, money market, NOW, and time accounts. They are the costed portion of the funding base, the complement to noninterest-bearing demand deposits.
How is Interest-Bearing Deposits calculated?
Schedule RC-E splits deposits into noninterest-bearing and interest-bearing. Dividing total interest expense on deposits by average interest-bearing deposits approximates the rate paid on this funding.
Why does Interest-Bearing Deposits matter?
The interest-bearing share of deposits, and the rate paid on it, drive a bank's cost of funds. A bank whose funding skews heavily interest-bearing (especially toward CDs) sees its margin squeezed faster when rates rise than a peer rich in free checking.
How do you interpret Interest-Bearing Deposits?
Read interest-bearing deposits as a share of total and against the rate paid. A rising interest-bearing share (a mix shift out of free checking) or a rising rate both push the cost of funds up and compress net interest margin.
What do Interest-Bearing Deposits levels indicate?
| Range | Label | Interpretation |
|---|---|---|
| Low share, low rate | Strong | Funding tilted to free checking; cheap overall cost. |
| Balanced | Adequate | Typical mix of interest- and noninterest-bearing. |
| High share rising | Watch | Mix shifting toward costed deposits. |
| Dominant, high-rate | Concern | Costly funding base squeezing the margin. |
Worked example
Frequently asked
What is the difference between interest-bearing and noninterest-bearing deposits?
Interest-bearing deposits pay the customer interest (savings, money market, NOW, CDs); noninterest-bearing deposits (chiefly business checking) pay nothing. A larger noninterest-bearing share means cheaper funding.
Why does the interest-bearing share matter when rates rise?
Interest-bearing balances reprice upward as rates climb, lifting funding costs. Noninterest-bearing deposits cost nothing regardless of rates, so a bank with more of them is insulated from rising-rate margin pressure.
Sources
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