Funds transfer pricing (FTP) is the process of using market rates to value fund using and fund providing products (loans, deposits, etc.) independently of each other. This is like funding or investing each customer account (or other balance sheet item) separately. Using a cash register analogy: Imagine adding a new fixed rate loan to your balance sheet. During FTP processing, the FTP system calculates the funds charge for that loan based on its maturity characteristics. Every quarter, because interest rate risk is reported separately, the cash register rings for that branch or product in the amount that loan's rate is above the comparable wholesale rate. Similarly, deposits receive a funds credit and their spread is the amount that their rate is below the comparable wholesale rate. There are two main benefits to using market rates. By using them, business units do not enjoy or pay for:

1. Efficiencies or inefficiencies in other units
2. Interest rate risk the bank may assume as a matter of Asset/Liability Management policy

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There are three main methods used in funds transfer pricing. They are:

1. Coterminous (sometimes known as matched maturity)
2. Cash flow
3. Blended rates (sometimes known as pool rates)