Bank of Queensland will maintain a pricing premium of around 10 basis points on term deposits in order to maintain above-system growth in its deposit book and attain its target retail funding level of 63 per cent.The bank yesterday provided a fresh view of the composition of its funding in a presentation explaining the detail of its financial statements for the half year to February 2012. BOQ provided an overview of these financials - including a loss of A$91 million - in an update three weeks ago.BOQ achieved rapid growth in its retail deposit book over the course of 2011, mainly through the use of high priced at-call deposits (taking into account promotional rates, BOQ's product was at times the best on the market).However, these rates were eating into the bank's net interest margin and also generating little customer flow with any longevity.Thanks to what chief financial officer Ewan Cameron described as an "intentional strategy of decreasing reliance on promotional web saver accounts" this form of retail funding has declined from $4.5 billion at October 2011 (or more than a fifth of retail deposits) to $3.3 billion at the end of February 2012 (and 15 per cent of the book).Cameron said that BOQ was paying approximately 140 basis points over the cash rate for at-call funds. "There is no doubt that this is hot money and will be treated quite unfavourably under Basel III compared with term deposits," Cameron told the briefing. "We made a decision to roll off these specials into the base rate and continue to offer attractive TD rates, to ensure funds remained with the banks."BOQ has had to wear some additional short-term pain on its net interest margin in order to hang on to some of these funds as term deposits."Comparing our medium-term deposit special, which was in place before the recent volatility started in August 2011, we were raising a seven-month TD special at 6.30 per cent, 155 basis points over the cash rate," Cameron said.This resulted in term deposit funding being priced at around 120 basis points over swaps, he said. "Following two cash rate cuts of [a] 50 basis points reduction in the cash rate, we're currently offering TDs at 165 basis points over the cash rate on the current six month special. "However, with the market's pricing and three rate cuts by November, [this has] resulted in effective funding currently of 170 basis points over swaps."Cameron also noted that "the cost of taking out basis hedges has increased over 20 basis points, which adds to the cost of funding."This means that the retail funding cost pressure has been driven more by the yield curve rather than pricing up in the market. And this should come back to us as the interest rate becomes more certain during the course of this year, which we hope it does. "That being said, competition is still fierce out there, which has forced retail basis points as well as cash rates to protect our growth rate."