Cost of funds
Cost of Liabilities
Cost of funds is the blended average interest a bank pays across every kind of deposit and borrowing it uses to fund its loans.
Formula
Cost of funds
Cost of Funds (%) = Total Interest Paid ÷ Average Interest-Bearing Liabilities × 100
Benchmark: Lower is better; it is the check on a flattering CASA ratio
Reading the number
Current accounts cost 0 percent, savings accounts about 3 percent, fixed deposits about 6.5 percent, and there are many other deposit forms. Cost of funds blends them into one number.
Always view CASA and cost of funds together. A high CASA ratio bought with high savings rates shows up here as a higher cost of funds, and only the pair tells you whether the bank's money is genuinely cheap.
Indian example
Related ratios
Glossary terms
From the research
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