What’s In Store for Deposit Rates in 2014?

by tom 9. January 2014 14:32

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.

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Weekly Term Accounts APY Spread and Premium Index-May 14

by tom 14. May 2012 16:00

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index
The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index
Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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Number of Problem Banks Shrinking–First Time Since 2006

by tom 26. August 2011 17:51

There’s good news in banking this week. According to a report in the Wall Street Journal, for the first time since 2006 increased lending for the first time in Q2 of 2011. According to the FDIC, the increase was a modest 1 percent from the previous quarter, but it was an increase nonetheless. At the same time, bank profits were down for the second quarter in a row for Q2 ending in June. The FDIC indicates that the lack of profits is due to a lack of loan-worthy customers. (It’s  interesting that bank revenues have only fallen in three quarters in the last 30 years.)

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According to the report, there were 22 bank failures during the quarter, which is the lowest number since the beginning of 2009. Banks are struggling to find ways to increase revenue from fees and interest payments in order to return to profitability:

"We haven't seen banks' ability to earn money, prior to credit improvements, do much in the last year or so, and the recent changes in interest rates make it even more doubtful that they'll be able to be very successful," said Fred Cannon, director of research at investment bank Keefe, Bruyette & Woods.

The article also reports that banks have higher cash reserves, partly as a hedge against losses but also because they can’t find credit-worthy borrowers for loans. Large banks increased their balances with the Fed by $137.3 billion in the second quarter, an increase of 22 percent over the first quarter.


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