Net Interest Margin (NIM)
Net interest margin is a bank's interest income minus its interest expense, expressed as a percentage of its interest-earning assets. It measures how much a lender earns on the gap between what it charges borrowers and what it pays for funds.
Also called: NIM · net interest margin ratio · bank interest margin
The calculation is net interest income divided by average earning assets. Asset yields drive the top line: loan rates, securities and balances held at the central bank. Funding costs drive the bottom: interest paid on deposits and borrowings. Deposits that pay little or no interest, such as business operating accounts, are the cheapest funding a bank has, and a large base of them lifts the margin.
Banks usually fund short and lend long, so the margin depends on the yield curve. A steep curve widens it; a flat or inverted curve squeezes it, especially for banks holding fixed-rate loans and bonds bought when rates were low. The FDIC reported that the US industry margin rose to 3.28 percent in the fourth quarter of 2024 as funding costs fell faster than asset yields.
NIM explains much of the bank behaviour that payment firms meet. Operating balances from fintechs and payment companies are valued because they are cheap and sticky, which is the economics behind banking-as-a-service partnerships and FBO accounts, and why banks pass on less interest on client balances when rates fall. When margins come under pressure, banks reprice deposits and look harder at relationships that cost more to serve than they earn.
In practice
NIM ignores fees, credit losses and operating costs, so a high margin can sit alongside weak profits. Compare it only across banks with similar business models.
Example
A bank with average earning assets of US$100 billion earns US$5.5 billion in interest and pays US$2.3 billion on deposits and borrowings. Its net interest margin is (5.5 minus 2.3) divided by 100, or 3.2 percent.
Learn more on Money Wiki
This page gives the short answer. Money Wiki has a longer guide to Net Interest Margin, with more detail and background.
Read “Net Interest Margin (NIM)” on Money Wiki (opens in a new tab)
Commonly confused with
| Term | How it differs |
|---|---|
| Net interest spread | Net interest spread is the average asset yield minus the average funding rate. NIM divides net interest income by earning assets, so it also captures the benefit of interest-free funding. |
See also
- Yield CurveThe yield curve plots the interest rates on bonds of the same credit quality across different maturities, usually government bonds from one month to thirty years. Its shape shows what markets expect for interest rates, inflation and growth.
- Inverted Yield CurveAn inverted yield curve is one where short-term interest rates are higher than long-term rates on bonds of the same issuer. In the United States it has been one of the more reliable warnings of recession, though not an infallible one.
- Maturity TransformationMaturity transformation is the practice of funding long-term, illiquid assets with short-term liabilities that can be withdrawn or must be renewed quickly. It is the core economic function of banking and the source of its fragility.
- Banking-as-a-ServiceBanking-as-a-Service is an arrangement in which a licensed bank makes its accounts, payments and cards available to a non-bank company, which builds the customer-facing product. The bank keeps the charter, the insured deposits and the regulatory responsibility.
- Federal Funds RateThe federal funds rate is the interest rate at which US depository institutions lend reserve balances to each other overnight. The Federal Open Market Committee sets a target range for it, and that range anchors short-term dollar interest rates worldwide.