Deposit Beta

When the central bank raises interest rates, banks usually raise the rates they charge borrowers fairly quickly. They often raise the rates they pay savers more slowly and by less. Deposit beta captures how much of the rate change reaches depositors.

It is expressed as a fraction or percentage. If the central bank raises its rate by 2 percentage points and a bank raises its average deposit rate by 0.6 percentage points, the deposit beta is 0.3, or 30%.

A low deposit beta helps bank profits when rates rise, because loan income increases faster than deposit costs, widening the net interest margin. But if depositors notice the gap and move money to higher-paying accounts or other banks, the bank may have to raise its rates more sharply later.

Deposit betas tend to rise as interest rate increases continue, as competition for deposits intensifies and as customers become more aware of better rates. They also differ by deposit type: current accounts usually have low betas, while savings accounts and time deposits have higher ones.