Deposit Rate

Banks pay interest on deposits to attract funds, which they then use to make loans. The difference between the interest rate banks earn on loans and the rate they pay on deposits is a major source of their profits.

Deposit rates vary depending on the type of account. Easy-access accounts, where money can be withdrawn at any time, usually pay lower rates. Fixed-term deposits or notice accounts, where money is locked away for a set period, often pay higher rates. Online banks and smaller banks sometimes offer higher rates to attract customers.

For example, a bank might pay 2% on an easy-access savings account and 4% on a two-year fixed-term deposit.

Deposit rates tend to follow central bank policy rates, rising when the central bank raises rates and falling when it cuts them, although banks often pass on rate increases to savers more slowly than to borrowers.

The term also has a specific meaning in central banking. Some central banks, such as the European Central Bank, set a deposit facility rate, the interest they pay banks for overnight deposits, which serves as a key policy rate.