Bank Deposit Composition
A bank's deposit composition tells you what kind of funding base it has built and how vulnerable that base is to rate competition. The four main categories behave differently in terms of cost, stability, and rate sensitivity.
The Four Deposit Types
Non-interest-bearing (NIB) deposits are checking accounts that pay no interest. They cost the bank nothing in interest expense, making them the most valuable deposit type. These accounts are sticky because they're tied to operating needs: businesses use them for payroll and vendor payments, consumers use them for daily spending. Moving a primary checking account is enough of a hassle that most customers don't bother unless something goes seriously wrong.
Interest-bearing checking and savings accounts pay modest rates. The cost is low relative to wholesale alternatives, and these accounts are moderately sticky. Customers may compare rates occasionally but tend to stay put if the bank's rate is in a reasonable range.
Money market accounts pay higher rates and attract rate-conscious depositors. These accounts are more mobile. When a competitor offers a materially better rate, money market balances tend to shift. Banks competing for these accounts face ongoing pricing pressure.
Certificates of deposit (CDs) lock in a rate for a fixed term, typically three months to five years. The rate is usually the highest among deposit types. CDs are predictable while they're outstanding but reprice entirely at maturity. A bank with a large CD book faces significant repricing risk as those CDs mature in a changing rate environment.
Why the Mix Matters
A bank where NIB deposits make up 35% to 40% of total deposits has a fundamentally different cost structure than one where NIB accounts represent 15% to 20%. The first bank can afford to price loans more competitively or earn wider margins because its funding base includes a large zero-cost component.
During rising rate cycles, the difference becomes more pronounced. NIB balances don't reprice at all. Savings accounts reprice slowly. Money market and CD accounts reprice quickly and sometimes aggressively. A bank with a heavier weighting toward the cheaper, stickier categories experiences less margin compression as rates rise.
Where to Find This Data
Banks disclose their deposit composition in the 10-K and 10-Q, typically in a note to the financial statements. Look for the breakdown by type and the average rate paid on each category. Compare the mix over several periods to see whether the composition is stable or shifting toward more expensive funding sources. A steady migration from NIB into rate-bearing categories is a warning sign about franchise quality.
Related Articles
- Core vs. Brokered Deposits — The core vs. brokered distinction adds another layer to deposit quality analysis
- Understanding Deposit Betas — Deposit composition determines how quickly overall funding costs respond to rate changes
Related Metrics
- Cost of Deposits — Deposit composition is the primary driver of overall cost of deposits
- Deposits to Assets Ratio — Total deposit levels relative to assets show the bank's funding structure
- Net Interest Margin (NIM) — The deposit mix directly determines the funding cost side of net interest margin