Definition
Net Interest Spread vs Margin
Net interest spread is the gap between the average yield on assets and the average cost of liabilities, while net interest margin expresses net interest income over earning assets.
The two are related but distinct. The spread simply compares rates earned and paid, ignoring the size of non-interest-bearing funds. NIM divides net interest income by average interest-earning assets, so it captures the benefit of free funds like CASA and equity.
NIM usually exceeds the spread because banks fund part of their assets with non-interest-bearing sources. Tracking both helps analysts see whether margin changes come from rate moves (spread) or from shifts in the funding mix and balance-sheet structure.
Related terms
- Net Interest Margin (NIM)Net Interest Margin is the difference between the interest a bank earns on advances and investments and what it pays on deposits and borrowings, expressed as a percentage of average interest-earning assets.
- Spread (Banking)In banking, the spread is the difference between the yield a bank earns on its assets and the rate it pays on its liabilities, typically the gap between yield on advances and cost of funds.
- 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.
- Net Interest Income (NII)Net Interest Income is the difference between the interest a bank earns on its assets and the interest it pays on its liabilities, the core of its operating revenue.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.