Interbank deposit

An interbank deposit is any deposit in which a bank lends to another bank . A bank deposit is a contract whereby a client invests in a financial entity an amount of money for the custodian in exchange for receiving an interest rate , in this case, the client is also a bank. The possibility of making that deposit at a certain term (expiration date) is called a fixed term deposit .

Financial institutions use the money received during the term determined in the fixed-term deposit to obtain a higher return than they are going to pay to that client, (a bank’s main business). Access to wholesale markets, among which the interbank deposit market is worth mentioning, is what makes it possible to obtain a benefit by raising funds through interbank deposit .

The interbank deposit market is the basis for most banking operations and also for the formation of EURIBOR , EONIA and LIBOR . These are the interest rates at which banks are willing to take or lend funds in different installments.

In the quotation of an interbank deposit we start from the premise that in any quotation there must be two parts or sides (provider and policyholder).


– We quote an interbank deposit:

6-month deposit: 3.25-3.30%.

We are indicating that at the 3.25% interest rate we are willing to take funds and at 3.30% loans. This makes sense, because we will always want to make a profit on our operations by taking cheap funds (paying little interest) and paying expensive money (charging a lot of interest).

– We quote an interbank deposit:

3 month deposit: 5.50-5.55%.

To operate with this entity that is contributing this deposit to us, if we want to take funds, we will have to do so at the 5.55% interest rate (paying high interest), that is,  financing us expensive . On the other hand, if we want to lend funds, we must do so at the 5.50% interest rate, since in this way we are investing our money on the side of which the bank is willing to pay us lower interest rates.

by Abdullah Sam
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