Net Interest Income (NII)

Written By
Paul Tracy
Updated June 30, 2021

What is Net Interest Income (NII)?

Net interest income is the difference between interest received from assets and interest paid on liabilities. 

How Does Net Interest Income (NII) Work?

The formula for net interest income is:

Net Interest Income = Interest Received - Interest Paid

Let's assume XYZ Bank earns $1,000,000 for the month on its mortgage loans, commercial loans, and personal loans. It also pays $975,000 in interest to its depositors for their CDs, checking accounts, and savings vehicles. Using the formula above, XYZ Bank's net interest income is:

Net Interest Income = $1,000,000 - $975,000 = $25,000

Why Does Net Interest Income (NII) Matter?

Net interest income can be positive or negative, and it is listed on the income statement.

In regard to banks, net interest income should go up as the yield curve steepens (long-term rates rise faster than short-term rates) because the bank is able to pay depositors a relatively low rate, but it can charge its borrowers a higher rate. 

Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Net Interest Income (NII).
Be the first to ask a question

If you have a question about Net Interest Income (NII), then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Net Interest Income (NII), then please ask Paul.

Ask a question Read more from Paul

Read this next

Paul Tracy - profile
Ask an Expert about Net Interest Income (NII)

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms