Customer deposits and funding

Bank deposits are most banks' main source of funding and their largest liability. The accounting looks simple, but bonuses, structured returns, dormant accounts and acquired deposit books all raise questions. This guide works through the main issues, with an example of a deposit with a joining bonus.

By Muhammad Bilal, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. 3 minute read.

Short answer

Customer deposits are financial liabilities of a bank, usually measured at amortised cost with interest expense recognised using the effective interest rate. Bonuses and incentives paid to depositors are part of that rate. Deposits with embedded derivatives, such as returns linked to an equity index, are split or measured at fair value. The fair value of a demand deposit is never less than the amount payable on demand. In this guide's example, a two-year deposit of 1,000,000 paying 4% with a 1% joining bonus has an effective cost of 4.53%.

At a glance

Classification
Financial liability
Measurement
Usually amortised cost
Bonuses and teaser rates
In the effective interest rate
Structured deposits
Embedded derivative or fair value option
Demand deposits, fair value
Not less than amount payable
In acquisitions
Core deposit intangible
Customer deposits and fundingClassification: Financial liability; Measurement: Usually amortised cost; Bonuses and teaser rates: In the effective interest rate; Structured deposits: Embedded derivative or fair value option; Demand deposits, fair value: Not less than amount payable; In acquisitions: Core deposit intangible.KEY FACTS AT A GLANCECustomer deposits and fundingClassificationFinancial liabilityMeasurementUsually amortised costBonuses and teaser ratesIn the effective interestrateStructured depositsEmbedded derivative orfair value optionDemand deposits, fair valueNot less than amountpayableIn acquisitionsCore deposit intangibleTax BakersCustomer deposits and fundingClassification: Financial liability; Measurement: Usually amortised cost; Bonuses and teaser rates: In the effective interest rate; Structured deposits: Embedded derivative or fair value option; Demand deposits, fair value: Not less than amount payable; In acquisitions: Core deposit intangible.KEY FACTS AT A GLANCECustomer deposits and fundingClassificationFinancial liabilityMeasurementUsually amortised costBonuses and teaser ratesIn the effective interest rateStructured depositsEmbedded derivative or fair value optionDemand deposits, fair valueNot less than amount payableIn acquisitionsCore deposit intangibleTax Bakers
Key facts at a glance, as set out in this guide.

How are the main types of customer deposits measured?

Customer deposits under IFRSCustomer deposits under IFRSMeasurementKey issueCurrentaccountsAmortised costFair value floorSavings andterm depositsAmortised costBonuses in EIRStructureddepositsSplit orfair valueEmbedded optionAcquired depositbooksAmortised costCore depositintangible
Most deposits are simple; the exceptions need care.

A deposit with a joining bonus

A customer places 1,000,000 in a two-year fixed deposit at 4% a year, paid annually. To attract the deposit, the bank pays a 1% bonus of 10,000 on day one. Economically, the bank has received 990,000 and will pay 40,000 after one year and 1,040,000 after two.

Amount
Initial carrying amount: deposit less bonus990,000
Effective interest rate4.53%
Interest expense, year 144,889
Interest expense over two years90,000

The bonus is not a marketing expense; it is part of the cost of the funding, spread over the deposit's term through the effective interest rate. The same applies to teaser rates on savings accounts, spread over the expected period the balance stays.

How are structured deposits treated?

A deposit that pays a return linked to an equity index, with the capital protected, contains an embedded derivative. Because IFRS 9 still requires embedded derivatives in financial liabilities to be separated when they are not closely related to the host, the bank either separates the index option and measures it at fair value through profit or loss, keeping the host deposit at amortised cost, or designates the whole deposit at fair value through profit or loss. Under the fair value option, changes in fair value due to the bank's own credit risk go to other comprehensive income.

What is the fair value of demand deposits?

IFRS 13 says the fair value of a liability with a demand feature is not less than the amount payable on demand, discounted from the first date it could be required. So a bank cannot show its current accounts at a fair value below their balance, even though, in practice, the funds stay with the bank for years at low rates. That economic value, the stability and low cost of the deposits, is only recognised in a business combination.

What is a core deposit intangible?

When a bank acquires another bank, IFRS 3 requires it to recognise identifiable intangible assets. The value of a stable, low-cost deposit base, the core deposit intangible, is usually recognised separately from goodwill and amortised over the expected life of the relationships, often 5 to 10 years.

What about dormant accounts?

A deposit is derecognised only when the obligation is extinguished: repaid, cancelled or expired. Dormant balances therefore remain liabilities, even after many years without activity, unless the law transfers them to a public fund, in which case the bank derecognises them when it pays them over.

What do banks disclose about deposits?

Deposits by type and counterparty, their contractual maturities in the IFRS 7 liquidity risk analysis, where demand deposits fall in the earliest band even though they behave as stable funding, and concentrations, such as reliance on a few large corporate depositors. The gap between contractual and behavioural maturity is a key part of a bank's liquidity story.

How are deposit insurance levies treated?

Contributions to deposit guarantee schemes are often levies within IFRIC 21, recognised when the event that triggers the obligation occurs, as defined in the legislation, rather than spread over the year. See bank accounting, the effective interest method and fair value levels.

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Questions people ask

How are customer deposits measured under IFRS?

Usually at amortised cost, with interest expense recognised using the effective interest rate.

How are deposit bonuses accounted for?

As part of the effective interest rate, spreading the cost over the deposit's term, not as a marketing expense.

What is the fair value of a demand deposit?

Not less than the amount payable on demand, under IFRS 13.

What is a core deposit intangible?

The value of a stable, low-cost deposit base recognised as an intangible asset when a bank acquires another bank.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 9 Financial Instruments
  2. IFRS Foundation: IFRS 13 Fair Value Measurement

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

BankingBank accounting: the key IFRS issuesIFRS 9Amortised cost and the effective interest method under IFRS 9BankingFair value levels in bank accounts

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This guide is general information. It is not tax or legal advice for your situation.