Net interest margin is the difference between the percentage yield on a loan portfolio and the cost of funds to the bank.  The idea is to keep the cost of funds as low as possible and get the percentage yield on loans as high as possible while still remaining competitive.

Often times when you see banks that offer high CD rates they will often have higher loan rates also.

The best way to lower the average cost of funds for a bank is to gain non-interest bearing checking accounts.  Growing these kinds of accounts can help increase a banks net interest margin.  With more deposit in checking accounts and savings accounts banks don’t have to pay a premium for CD’s.  Being able to get lower cost of funds gives the bank more flexibility with loan pricing and they are able to offer lower rates to attract more customers who could be cross sold on other bank products.