Deposit beta
What is deposit beta, and why does it move a bank's margin when rates change?
ONE OF 366 TERMS · FREE · NO SIGNUP
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
Deposit beta is the share of a change in market or policy interest rates that a bank passes on to its depositors. If the central bank raises its rate by 2.00 percentage points and a bank lifts a savings rate by 0.60, that deposit's beta is 30%. A low beta widens the bank's margin while rates rise; betas also tend to climb as a rising cycle goes on and customers move to better-paying accounts, so analysts reading a bank's results ask what beta its margin outlook assumes. Transaction accounts usually have the lowest beta, and term deposits the highest.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WORKED IN
// NEXT TO IT
- Maturity transformation
- Risk-weighted assets
- Net interest margin
- Credit cycle
- Yield curve
- Cost of risk
- Management overlay (provisions)
- Notional pooling
- Zero-balancing (cash concentration)
- Confirmation of Payee (CoP)
- Business email compromise (BEC)
- Credit conversion factor (CCF)
- Four-eyes principle (maker-checker)
- Behavioural maturity
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