Things are looking up for 2014. The economy is on the rise. Personal consumption, which makes up about 70 percent of the GDP, improved consistently but slowly during 2013. Personal consumption increases 1.1 percent in Q1 of 2103 over Q1 2012, and by 4.1 in Q3, so consumers are spending more, which means more financial activity and borrowing. And 2014 promises a continued trend of steady economic growth. That means bank deposit rates for checking accounts, savings accounts, and CDs will start rising some time this year. It’s no longer a matter of “if” but rather when they will start to rise, and by how much.
No one has an accurate crystal ball to predict how deposit rates will change. If you did, you could price your deposit products with pinpoint accuracy and beat your competition on a regular basis. However, we can make some accurate predictions about deposit rates in the future by looking to the past (and we have more than 25 years of bank rate data in our database). Banking is a cyclical business, and since history repeats itself, looking to past performance offers a good indicator of what lies ahead for deposit rates.
The last time we had a rising rate environment was between July 2003 and July 2007. During that period we saw a more than 200-percent increase on the deposit rates for some products. The rate of increase differed, depending on the specific products, but by examining what we know about the behavior of rising rates in the past, we can make educated predictions about what’s in store looking forward.
Our latest research report, “Likely Scenarios of Rising Deposit Rates in 2014 and Beyond,” provides an accurate portrait of deposit rate behavior during the last rise cycle, giving bank and credit union executives invaluable insight into what to expect in the year to come. When planning rate increases and budgeting for future interest expenses, you want to have an accurate snapshot of what lies ahead.
For example, deposit rates long-term CDs (more than 3 years) rose from 2.59 percent to 4.37 percent from 2003 to 2007, an increase of 178 bps in four years. However, the rate increase was not consistent, and showed a definite fluctuation trend. If you look at the data, you can get a pretty good idea of where long-term CD deposit rates will be in the near-term and over the coming months.
The report covers deposit rate trends for checking, savings, money markets (MMDA), brief-term CDs, short-term CDs, mid-term CDs and long-term CDs. The analysis includes predictors for each product, the likely percentage of rate change, an elasticity analysis, distribution of product balances, and more.
Need more insight into rates for 2014. Check out our latest report to learn more about the future based on the past.