---
title: "Total Interest Expense: definition, formula, and thresholds"
description: "Total interest expense is everything a bank pays for its funding, interest on deposits and on borrowings. It is the cost side of the spread business and the line that surges fastest when rates rise."
canonical_url: https://www.bankregreports.com/glossary/total-interest-expense/
source: BankRegReports
category: "Income & Expense"
units: "$"
schedule: "Schedule RI"
---

# Total Interest Expense

> Total interest expense is everything a bank pays for its funding, interest on deposits and on borrowings. It is the cost side of the spread business and the line that surges fastest when rates rise.

## Formula

```
Total Interest Expense = Interest on Deposits + Interest on Borrowings & Other Liabilities
```

Schedule RI reports interest paid on each funding source. Dividing total interest expense by interest-bearing liabilities approximates the cost of funds; the gap between asset yield and funding cost is the net interest spread.

## Why it matters

Funding cost is where rate hikes bite first. Banks reliant on rate-sensitive deposits or wholesale borrowing see interest expense climb quickly, compressing margins, while those funded by sticky noninterest-bearing deposits are insulated.

## How to read it

Read interest expense with the cost of funds and the deposit mix. A low and slow-moving interest-expense line is the hallmark of a strong core-deposit franchise; a fast-rising one signals dependence on CDs, brokered deposits, or borrowings.

## Thresholds

| Range | Reading | What it means |
|---|---|---|
| Low, slow to rise | Strong | Cheap, sticky funding base. |
| Moderate | Adequate | Funding costs in line with peers. |
| Rising quickly | Watch | Rate-sensitive funding repricing upward. |
| High / wholesale-heavy | Concern | Expensive funding squeezing the margin. |


## Worked example

When the Fed raised rates through 2022-2023, banks funded by jumbo CDs and brokered deposits saw interest expense more than double, while peers funded by noninterest-bearing business checking barely moved. The difference showed up directly in net interest margin.

## Questions

### What drives a bank's interest expense up?

Rising market rates, a deposit mix skewed toward CDs and money-market accounts, reliance on brokered deposits, and wholesale borrowing all push interest expense higher. A noninterest-bearing deposit base holds it down.

### How does interest expense relate to cost of funds?

Cost of funds expresses interest expense as a percentage of interest-bearing liabilities (or total funding), making it comparable across banks of different sizes.

## Sources

- [FFIEC Call Report Schedule RI (Income Statement)](https://www.ffiec.gov/sites/default/files/data/reporting-forms/FFIEC031_FFIEC041_202606_i.pdf) (PDF)

## Related metrics

- [Net Interest Income](https://www.bankregreports.com/glossary/net-interest-income/): Net interest income (NII) is the difference between the interest a bank earns on loans and securities and the interest it pays on deposits and borrowings. It is the core profit engine of traditional banking and the numerator behind net interest margin.
- [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.
- [Total Interest Income](https://www.bankregreports.com/glossary/total-interest-income/): Total interest income is all the interest and fees a bank earns on its earning assets (loans, leases, and securities) before subtracting funding costs. It is the gross top line of the spread business.
- [Brokered Deposits](https://www.bankregreports.com/glossary/brokered-deposits/): Brokered deposits are deposits a bank obtains through a deposit broker, a third party that places its customers' money at the bank, instead of directly from depositors. The brokered deposits ratio is brokered deposits divided by total deposits; heavy reliance on them is a supervisory red flag because the money is rate-sensitive and can leave quickly.

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