Abstract: How to set deposit interest rates is a vital issue in the management and operation of bank(s). Through an analysis of premature with drawal,the corresponding interests payment and the following impacts on bank risk compensation,this paper studies the issue of depositinter estrates pricing.We find that deposit interest rates show a non-linear characteristic and interestrates are directly influenced by the amount of premature withdrawal and the level of interests payments for withdrawn deposits.This paper gives theoretical explanations for some practical phenomena,such as why banks are willing to offer a higher rate for large deposits(or provide more services),and provide theoretical grounds for banks concerning issues like setting and adjusting interest rates,imposing penalty for premature withdrawal and charging fees for small balance accounts.

Key words: premature withdrawal, risk sharing, interestrate oricing