What are deposits and loans?
When you put money in a bank, you are in effect lending it to the bank. The bank owes you: it must pay the money back on demand or at maturity, with interest or profit. In the bank’s books, your deposit is therefore a liability.
On the other side, the bank lends to traders, farmers, salaried workers and companies. A loan is the bank’s asset, because the borrower owes the bank. The bank charges a higher rate on loans than it pays on deposits. That difference is called the spread.
Say Sumi’s salary lands in her savings account every month, and she keeps some money in an FDR. In the same town, Rafiq takes a bank loan to expand his grocery shop. Sumi and Rafiq have never met, but the bank connects them: deposits from many people like Sumi, loans to many like Rafiq. The story is made up.
Why it matters to an investor
- To see that a deposit carries risk too: depositing means lending to the bank, so whether the bank’s loans are repaid ultimately affects depositors as well.
- To understand why rates differ: banks charge more on loans than they pay on deposits because the gap covers their costs, bad-loan losses and profit.
- To understand why rates move: when the central bank changes its policy rate, banks’ cost of funds changes, so deposit and loan rates follow over time.
- To know the limit of protection: if a bank is closed, deposits are legally protected only up to a set amount, not beyond it.
How a bank earns
A bank earns mainly from the spread, plus various fees and charges. On the cost side are interest paid to depositors, staff and branch costs, and money set aside for loans that may not be repaid (provisions). What is left of the spread after all that is profit.
According to a Financial Express report on Bangladesh Bank data, in June 2026 the weighted average deposit rate across all banks was 6.16% and the lending rate 11.86%, a spread of 5.70%. The spread changes over time: it was below 3% in some months of 2023 and rose above 5% in February 2024. Islamic banking uses profit-sharing (mudaraba) instead of interest, but the basic idea of funding finance from deposits is the same.
Source: The Financial Express, 26 August 2026 (Bangladesh Bank data)
See the numbers as a table
| Average rate | |
|---|---|
| Deposit rate | 6.2% |
| Lending rate | 11.9% |
Why banks must keep reserves
Depositors can withdraw whenever they like, but a bank’s loans run for years. Because of this mismatch, a bank must always keep some cash or assets that are easy to sell. Bangladesh Bank sets two rules for this: the cash reserve ratio (CRR), held at the central bank, and the statutory liquidity ratio (SLR), held in liquid assets such as government securities.
- According to Bangladesh Bank’s December 2025 publication, the CRR is 4%, and the SLR is 13% for conventional banks and 5.5% for Islamic banks. The central bank changes these ratios from time to time.
- If many depositors try to withdraw at once, reserves may not be enough. The central bank can then provide temporary funds to a sound bank; this is called the lender of last resort.
When loans go bad, and how your deposit is protected
Some loans are never repaid. When bad loans pile up, the bank earns less, sets aside more provisions, and covers the losses from its own capital. If capital runs very low, depositors’ money can be at risk too. This is why banks are tightly regulated.
In Bangladesh, if a bank or financial institution is wound up, depositors are compensated up to a set amount. Under the Deposit Protection Act 2026, this limit was raised from Tk 1 lakh to Tk 2 lakh per depositor; Bangladesh Bank runs the scheme. The law and the limit can change, so it is worth checking the latest rules with Bangladesh Bank.
Worked example
- Say a bank takes Tk 100 crore in deposits at an average of 6% a year. Annual interest cost: Tk 6 crore. The numbers are only an example.
- After keeping reserves and liquid assets, say it lends Tk 80 crore at 12% a year. Interest income: Tk 9.6 crore.
- If 2% of the loans, Tk 1.6 crore, go bad, both that principal and its interest are at risk. Provisions must be set aside from income.
Result: on paper there is a gap of 9.6 − 6 = Tk 3.6 crore, but after staff, branches and bad loans the real profit is much smaller. If bad loans rise, the gap can disappear quickly.
Common mistakes
- Thinking the bank keeps your money set aside in a vault. In reality most of it is lent out or held in other assets.
- Looking only at the highest deposit rate, without asking why the institution is offering so much and what the risk is.
- Assuming that the whole deposit, however large, is legally protected.
- Treating deposit rates and loan rates as separate worlds. Both are tied to the same policy rate and the same bank’s costs.
A deposit is a loan you make to the bank; the bank lends on at a higher rate, and the gap pays for its costs, its risks and its profit.