Definition:

Increase in Deposits refers to the growth in the total amount of funds deposited by customers into a financial institution over a specific period. This metric indicates the institution's ability to attract and retain customer deposits, which are crucial for its liquidity and lending capacity.

Examples

1. A bank reports an increase in deposits from $500 million to $550 million over a quarter, indicating a $50 million growth.
2. A credit union sees its member deposits grow from $200 million to $220 million in a year, reflecting a $20 million increase.

Formula:

Increase in Deposits = Ending Deposits - Beginning Deposits

How to use the metric:

This metric is used to assess a financial institution's performance in attracting new deposits and retaining existing ones. It helps in evaluating the institution's liquidity position, funding stability, and potential for expanding its lending operations.

Limitations:

1. An increase in deposits does not necessarily indicate profitability or financial health, as it does not account for the cost of acquiring these deposits.
2. It may be influenced by external factors such as changes in interest rates or economic conditions, which can affect depositors' behavior.

Applies to:

This metric is most relevant to the banking and financial services industry, including banks, credit unions, and savings institutions, where deposits are a primary source of funding.

Doesn't apply to:

Industries that do not rely on customer deposits for funding, such as manufacturing, retail, or technology, as they typically generate revenue through sales of goods and services rather than financial deposits.

Summary:

Increase in Deposits is a key metric for financial institutions to measure their ability to attract and retain customer funds. While it provides insights into liquidity and funding stability, it should be considered alongside other financial metrics to gain a comprehensive understanding of the institution's financial health.