Definition:

Total Interest Bearing Deposits refer to the sum of all deposit accounts in a financial institution that earn interest for the depositor. These include savings accounts, money market accounts, and certain types of certificates of deposit (CDs).

Examples

Examples of interest-bearing deposits include a savings account with a 1% annual interest rate, a money market account offering 0.5% interest, and a 12-month CD with a 2% interest rate.

Formula:

Total Interest Bearing Deposits = Sum of all interest-bearing account balances

How to use the metric:

This metric is used by banks and financial analysts to assess the amount of funds a bank has that are subject to interest payments. It helps in understanding the bank's liability structure and the cost of funds.

Limitations:

The metric does not account for the interest rate fluctuations or the maturity structure of the deposits. It also does not provide insights into the bank's overall financial health or profitability.

Applies to:

This metric is most relevant in the banking and financial services industries, where understanding deposit structures and interest liabilities is crucial for financial management and regulatory compliance.

Doesn't apply to:

Industries outside of banking and finance, such as manufacturing or retail, do not typically use this metric as they do not deal with deposit accounts or interest-bearing liabilities in the same way.

Summary:

Total Interest Bearing Deposits is a key metric for banks to evaluate the volume of deposits that incur interest expenses. While useful for understanding a bank's liability profile, it does not provide a complete picture of financial health or interest rate risk.