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What Is the Cost of Funds?

By Kristi Waterworth – Updated Jun 3, 2025 at 11:12AM

Key Points

  • Cost of funds reflects the bank's cost for money it lends, impacting interest rates and profit.
  • It is calculated by dividing paid interest by depositor's average balance.
  • Investors use it to gauge a bank's profitability and choose suitable investment options.
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