Definition
Deposits (Banking)
Deposits are the funds customers place with a bank in current, savings and term accounts, forming the bank's primary and cheapest source of funding.
Deposits split into low-cost demand deposits, the CASA balances in current and savings accounts, and higher-cost term deposits like fixed and recurring deposits. The deposit mix is the main lever on a bank's cost of funds.
A strong, granular retail deposit franchise is prized because it provides stable, low-cost funding that supports NIM and satisfies LCR and NSFR requirements. Bulk and wholesale deposits are cheaper to gather quickly but are flightier and costlier, so banks compete hard for sticky retail money.
Related terms
- Cost of FundsCost of Funds is the weighted-average interest rate a bank or NBFC pays to raise the money it lends, covering deposits, borrowings and bonds.
- CASA (Current and Savings Account)CASA refers to the combined balances in current and savings accounts, which are a bank's cheapest source of funds.
- Credit-Deposit Ratio (CD Ratio)The Credit-Deposit Ratio is the proportion of a bank's deposits that it has lent out as advances, measuring how aggressively it is deploying its deposit base.
- Advances (Banking)Advances are the loans a bank extends to borrowers, forming the main interest-earning asset on its balance sheet.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.