What is net interest margin? How banks make money from lending
By SendPay Business · · 2 min read
Net interest margin, often shortened to NIM, measures how much a bank earns from the gap between the interest it charges on loans and the interest it pays on deposits, as a share of the assets that earn interest.
How it is worked out
- Add up the interest the bank earns on loans and investments over a year.
- Take away the interest it pays to savers and other lenders.
- Divide the result by the average value of its interest-earning assets.
- Show it as a percentage: that is the net interest margin.
A simple example
If a bank earns £50 million in interest, pays out £20 million, and has £1 billion of interest-earning assets, its net interest income is £30 million and its net interest margin is 3%.
What moves it
Central bank interest rates, competition for savers, the mix of loans a bank makes, and how many borrowers fail to repay all affect the margin. When rates rise, margins often widen if banks raise loan rates faster than savings rates.
How money apps earn differently
Many money apps do not lend, so they earn from fees instead: card interchange, currency exchange, subscriptions and transfers. A SendPay platform works this way. You set your own fees on accounts, cards, transfers, exchange and crypto trades, and SendPay does not offer lending.
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How do I work out net interest margin?
Subtract interest paid from interest earned over a year, then divide by average earning assets. The free calculator does it for you and also shows the spread.
Net interest margin calculator →Read next
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.