Weekly Term Accounts APY Spread and Premium Index–Feb 9

by tom 9. February 2015 16:49

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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National Pricing Indicator | CD rates | Building Deposits

How to Identify a Deposit Pricing Trend

by tom 2. September 2014 12:00

Market Rates Insight tracks trends in deposit rates, but what constitutes a trend?  This article was written by Dr. Dan Geller, executive vice president for Market Rates Insight, for BAI Banking Strategies about how to spot a trend in deposit pricing.

Tracking trends in deposit pricing involves three fundamental principles, each of which provides an additional perspective for the analysis:

Distinguishing between an event and a trend. A pricing event is a single occurrence of rate changes that may not repeat itself for a long period of time. Such an event may occur as a reaction to temporary need for liquidity or in response to competitive pressure. A trend, on the other hand, is a succession of increases over time designed to achieve a strategic goal in response to economic conditions.Dan Geller Ph.D.

Conventional deposit tracking reports are designed to show pricing events, focusing on rate changes (if any) that occurred during the previous week. However, if rates are rising in intervals of every four weeks, a conventional report will show only 25% (one out of four weeks) of the trend. On the other hand, a trend tracker report shows cumulative changes in rates regardless of time intervals, thus highlighting a trend in pricing rather than just a single event.

Enlarging the field of vision. Conventional deposit reports track a defined set of competitors, typically 10 to 15. That’s important but it is limited in scope because a pricing trend may start outside the “field of vision” of a handful of competitors.

The use of a trend tracker tool expands the field of vision without the need to increase the number of tracked competitors on a regular basis. The ability to select any deposit product at any institution provides a wide view of pricing changes, thus allowing detection of trends. For example, this trend tracker analysis shows CD rates in the Illinois pricing region. In the second quarter of 2014, the number of flat (unchanged) CD rates dropped 12.2%. This variance reflects a 6.7% increase in the number of CD products exhibiting rising rates and 5.5% increase in CDs with falling rates in the second quarter compared to the first quarter.

Monitoring and analyzing. Trend tracking is an ongoing task. It’s also important to establish regular monitoring in order to detect looming trends in deposit pricing. A best practice is to establish a rotation schedule for trend tracking, for example, a weekly monitoring of a particular product, such as money market accounts, across the entire market in conjunction with the weekly monitoring of the competitive set. The information obtained in the trend tracker report should then be analyzed.

Financial health is no different than personal health in that early detection of anomalies is paramount. Otherwise, you run the risk of incurring a higher cost of funds and liquidity shortfall – not to mention, getting caught by surprise.

Weekly Term Accounts APY Spread and Premium Index–Jul 21

by tom 21. July 2014 16:48

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.

image

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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What If Deposit Balances Could Talk?

by Tom 11. June 2014 18:44

We recently compiled a new research report,"Likely Scenarios of Rising Deposit Rates in 2014 and Beyond,” which draws from 25 years of cumulative data here at MRI to consider the future of deposit rates based on past performance. This article was written by Dr. Dan Geller, executive vice president for Market Rates Insight, for this BAI Banking Strategies about some of his research findings.

Dan Geller Ph.D.

Sometimes it is helpful to step away from the daily grind of interest rates, product development, and pricing decisions and to look at the big picture. What actually happened with deposit balances throughout the last 10 years and what does that portend for the future? 

Let’s imagine six good deposit friends gathered to reminisce about what they went through in the past decade. “I feel like I have not grown at all in the last 10 years,” says Short-Term CD. “When I look back, I was nearly at the same level as I am today minus inflation.”

Mid-Term and Long-Term CDs say they feel exactly the same. The three CD friends look at the chart and confirm that they grew by between 20% and 25% during the period, which does not count for much; after discounting for the annual inflation rate of between 1.5% and 2.5%, they are nearly where they started in 2004.

“Speak for yourself,” says Liquid Funds. “We actually had a tremendous growth spurt in the last 10 years, growing by between 50% and 55%.”

One of the term CDs then points out that most of Liquid Funds’ growth occurred after the recession that started in December 2007. “That’s right,” says Liquid Funds. “That was the time when some of you, who are always looking for commitment, were not very attractive.”

He was talking about Short-Term CD, which fell 50% in the wake of the recession while Mid-Term and Long-Term were both up by about 40%. At the time, it was fashionable among customers to seek Mid-Term and Long-Term commitment in the expectation that interest rates would fall during the recession.

“Now that the recession is officially over, are we all back to being popular?” the CD group asks in unison.

“Unfortunately no,” says the know-it-all Liquid Funds. “In the past year, all of you shrank by between 5% and 14%, especially Long-Term CD. It looks like long-term commitment is not very appealing nowadays. By comparison, I’ve gained between 5% and 7% in the past year.”

“Well,” says Long-Term CD, “it’s true that I’ve been up and down in the last 10 years. But I always kept a positive attitude knowing that everything in life is cyclical and one day soon we will return to the glory days when long-term commitment is appreciated and rewarded. At some point, everyone will realize that hopping around is not as rewarding as making a long-term commitment.”

Using the Past to Predict Future Deposit Rate Trends

by tom 15. January 2014 16:27

Earlier this month, we released our latest research report, “Likely scenarios of rising deposit rates in 2014 and beyond.” This report helps bank and credit union executives make intelligent assumptions about pending deposit rate increases and future interest expense based on past performance of deposit products during the last cycle of rising deposit rates.

Can you get an accurate portrait of the future by looking at the past? The experts think so.

A contributor to The Economist, for example, states that... “historical data remains the best way to forecast the future....”

“When you use a financial model it requires assumptions about the underlying assets. These assumptions often are, but not limited to, the assets' expected price (on average) and volatility. Financial models find a price, and hedge against future fluctuations, based on these data points. There are two ways you can come up with these assumptions. You can use historical data or a personal view (from instinct, experience, or divine inspiration).

“The problem with a personal view is that there always exists a temptation to use assumptions that make your product most attractive. When times are bad the market might question such optimism, but in the midst of a bubble few will (other than your boss who'll ask why your view makes less money than your rivals). Historical data, for all its faults, is the only objective way to measure risk.”

File:Reading Tea Leaves by Harry Herman Roseland, 1906, oil on canvas - New Britain Museum of American Art - DSC09351.JPGThe notion of using historical data to predict the future is far from new, but it has been evolving and refined with time. For example, one of the latest academic disciplines, cliodynamics, uses mathematics to identify historical cycles with good accuracy. Deposit rates are just another form of past history, and by analyzing cycles in the past, you get an accurate view of the future.

The question becomes, how far back can you go for an accurate view of the future cycle? Market volatility is being increasingly affected by changes in technology and globalization, so can you use past data to reflect trends impacted by new market forces? To a great extent you can, particularly if you don’t have to reach into the distant past to identify a cycle.

Our latest report draws from data from the last rising deposit rate environment a decade ago, analyzing deposit rate data between July 2003 and July 2007. We have the benefit of having more than 25 years of deposit rate data to draw from which makes it easier for us to identify real trends. And our analytical experts are also drawing from other reliable market factors, such as the LIBOR rate and the Fed funds effective rate, to determine likely performance for deposit rates.

Nobody can read the tea leaves accurately and predict the future. However, we do understand the past, and history does tend to repeat itself so having a firm understanding of past business cycles is our best indicator of what’s likely to come.

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Weekly Term Accounts APY Spread and Index–Jan. 13

by tom 13. January 2014 16:20

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:

image

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:

image

Ask-the-Author133333

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.

Ask-the-Author133333

Weekly Term Accounts APY Spread and Index–Nov. 18

by tom 18. November 2013 18:26

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.
image

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:
image

Weekly Term Accounts APY Spread and Index–Nov. 4

by tom 4. November 2013 17:02

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.

image

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:
image

Weekly Term Accounts APY Spread and Index–Oct. 21

by tom 24. October 2013 10:35

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.

image

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:

image


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