what is the net interest rate spread 
the net interest rate spread is the difference between the yield that a financial institution receives from loans and other interest accruing activities and the rate it pays on deposits and borrowings the net interest rate spread is a key determinant of a financial institution s profitability or lack thereof understanding the net interest rate spreadloan granting institutions such as commercial banks receive interest income from several sources deposits often called core deposits are a primary source generally in the forms of checking and savings accounts or certificates of deposit cds these are often obtained at low rates banks also obtain funds through shareholder equity wholesale deposits and debt issuance banks issue various loans such as mortgages on property home equity lending student loans car loans and credit card lending that are offered at higher interest rates the primary business of a bank is managing the spread between the interest rate on deposits that it pays consumers and the rate it receives from their loans in other words when the interest that a bank earns from loans is greater than the interest it pays on deposits it generates income from the interest rate spread in simple terms net interest rates spreads are like profit margins the greater the spread the more profitable the financial institution will likely be however this is just the basic view and financial institutions work on creative customer acquisition customer retention and loyalty and principal investing strategies their individual strategies help them compete and differentiate themselves from other financial institutions the net interest rate spread in dollar value not percentage is similar to a non financial business gross profit it demonstrates profitability after costs calculation of the net interest rate spreadto calculate an interest rate spread you use the average rate of a bank s interest bearing liabilities and the yield for its interest earning assets a formula might be 