Weekly Term Accounts APY Spread and Index–April 8

by tom 8. April 2013 17:01

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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Virtual Banks Gaining on Brick-and-Mortar Institutions by Offering Better Rates

by tom 22. March 2013 16:13

We have blogged in the past about the import of branch banks and customer demand for location convenience. However, online-only banks are rapidly gaining ground, and many large institutions are hedging their bets to make sure they don’t miss out on a potential Internet banking boom. Will 2013 be the year of web banking? Here are some interesting observations from a story in this week’s Wall Street Journal:

  • The online banking share of the industry is only 4.2% of overall deposits.
  • Low overhead (no staff, no buildings) means online banks can offer savers higher yields.
  • The average savings account rate at Web banks is five times that of bricks-and-mortar banks – 0.60% to 0.11% (according to MoneyRates.com).
  • No fees – studies show that traditional banks are twice as likely to impose fees on checking and services than online banks.

Revenue for online banks is clearly on the rise. According to the Wall Street Journal report, online bank deposits hit $364 million in 2012 (up 32% from 2010 and 400% from 2004). At the same time, bank branches continue to decline. More than 750 branch banks closed last year for the third consecutive year in a row. image

To beat the spread, many of the larger institutions are betting on both traditional banks and virtual banks. CIT has added 50,000 customers and $5 billion in deposits after starting their online CIT Bank a year and a half ago. Capital One launched Capital One 360 following the acquisition of ING Direct as its online entry into digital banking race. They are reportedly offering 0.75% interest rate and plus checking with no fees.

So the question remains, how many depositors will give up the convenience of branch banking to go online? More traditional banks continue to extend online services such as online billpay, but will there come a day when the bank branches are close and consumers do all their transactions via smartphone, tablet PC, computer, ATM, or phone? How will banks ultimately blend their online and brick-and-mortar strategies? Any predictions?

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Mobile Banking | Internet Banking | In The News | Banking Trends

Deposit Rates Vary by State, Depending on the Local Economy

by tom 1. February 2013 16:30

When it comes to deposit rates, all states are not created equal. According to a recent article in American Banker (and our own research), deposit rates in some states, such as Louisiana, Texas, and Virginia, deposit rates are higher because the local economy is healthier.

According to our own Executive Vice President Dan Geller (from his interview with American Banker):

Banks that are operating in those states should focus on lending "because it's a sign there is an increase in economic activity," Geller says. Those banks must also monitor and stay competitive with deposit pricing "to make sure they are attracting the right amount ofDan Geller Ph.D. liquidity."

In the struggle to keep funding costs low, banks have been largely unwilling to pay up for deposits. Nationally, the average deposit rate hit an historical low of 0.35% in December, Geller says.

Louisiana had the highest average deposit rate in December, at 0.51%, compared to just 0.24% in Ohio, Geller says.

Economic health seems to have a major influence on deposit pricing. Average unemployment was 5.2% in December in the five states — Louisiana, Texas, Iowa, Nebraska and Virginia — with the highest deposit pricing. States with the lowest deposit rates — Ohio, West Virginia, Indiana, Michigan and New Hampshire — had an average unemployment rate of 7.4%.

"There's a link between the highest interest rates paid on deposits and state unemployment," Geller says. "These rates are clearly a reflection of economic activity."

Of course, there are outliers. In New Hampshire, for example, the unemployment rate is low at 5.7%, but deposit rates remain low as well at an average of 0.27%.

Other factors, such as the types of industries prevalent in each state, the number of small businesses, and the level of household income play a role in deposit rates as well. Another factor is the number of competing banks in the state. For example, the five states with the highest deposit rates average about 32,000 individuals per bank (customers and their families). The states with the lowest deposit rates average 49,000 per bank; they just don’t have the competition to encourage higher rates.

According to Market Rates Insight research, rates on deposits have leveled off in recent months, although rates on long-term CDs continue to decline slightly. Be sure to check in with our Research Store to learn more about how to get the latest information about deposit rates in your competitive markets.

Banking Industry Shifting from Brick to Click

by tom 8. January 2013 10:50

We have all seen the boom in mobile banking. Smartphones and remote deposit capture are changing the way consumers think about banking, and fewer customers are visiting their local banks since they now can conduct almost all their banking business online. This is starting to create a real competitive challenge for branch banks.

According to the Deposit Trends and Analysis for 2013 assembled by the Market Rates Insight research team, cyber-banking is promoting a paradigm shift in banking. Not only are Generation X and Generation Y consumers looking to simplify their banking with online access and mobile tools, a new type of Internet banking model is emerging. Branch banks have real costs associated with payroll and facilities, and Internet banks are starting to undercut brick-and-mortar banks because of lower operating costs. More branch banks are shifting their emphasis to online services to cut costs, and the number of overall branches are expected to decrease over time.image

Internet banks also are forcing banks to be more rate-competitive. MRI research shows that the average interest rate paid by Internet banks is 0.41% as opposed to 0.19% at branch banks. For some deposit types, such as savings, Internet banks are paying four time the rate paid by branch banks – 0.46% as opposed to 0.11%.

If the 2012 trends continues, the gap between Internet deposit rates and brick-and-mortar deposit rates will continue to widen. Both Internet and branch banks lowered their deposit rates during the first nine months of 2012, but the decrease in branch bank rates was greater widening the gap. The national average interest rate for branch banks dropped 0.03% as opposed to 0.01% for Internet banks.

For more insights about deposit trends for 2013, please contact us for a copy of the latest trends report.

Weekly Term Accounts APY Spread and Index–December 31

by tom 31. December 2012 15:19

Happy New Year! Every week, American Banker and Market Rates Insight present the APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices. Here is the final report for 2012.

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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Weekly Term Accounts APY Spread and Premium Index–January 23

by tom 23. January 2012 15:08

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

Relationship Banking Eliminates Bitter Pill of New ATM Fees

by tom 3. October 2011 10:09

Last week, we noted that Bank of America had announced a new $5 monthly fee for ATM transactions, and that fee announcement has generated a flood of queries from customers. Bank of America is giving some customers immunity from ATM fees – all they have to do is deepen their relationship with the bank.

According to a report in the Phoenix Business Journal, if you hold a mortgage, credit card, or investment account with Bank of America, chances are you will be immune from newly imposed fees:

“BofA (NYSE: BAC) is instituting a new $5 per month debit card fee for banking customers at the beginning of next year.

“But bank officials say if a customer has a mortgage or credit cards through BofA, or investments via Merrill Lynch, they are likely to immune from the new debit fees as well as recently instituted monthly maintenance fees on banking accounts.”

Clearly, despite new profit pressures from Dodd-Frank and other economic factors, banks are still striving  to promote a larger share of wallet through relationship banking, Customer Loyalty still pays off in the end.

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Banking Trends | In The News | Fees

Weekly Spread and Premium Indices for Deposit Products–September 26

by tom 26. September 2011 10:12

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

State Unemployment Rates are Not Indicative of State Deposit Rates

by tom 27. June 2011 16:34

According to this week’s National Pricing Indicator report, lower state unemployment rate does not always mean greater economic activity, higher lending demand and higher deposit rates. In fact, states with the lowest unemployment rate offer lower deposit rates than states with the highest unemployment rate.image

The five states with the lowest unemployment rate, as of April of 2011, are:

  • North Dakota 3.3%,
  • Nebraska 4.2%,
  • South Dakota 4.9%,
  • New Hampshire 4.9% and
  • Vermont 5.3%.

Despite these low unemployment rates, the average deposit rate in these states is below the national average rate of 0.76%:

  • North Dakota 0.63%,
  • Nebraska 0.68%,
  • South Dakota 0.65%,
  • New Hampshire 0.65% and
  • Vermont 0.71% (see Figure 1).image

On the other hand, in three of the five states with the highest unemployment rate as of April of 2011, the average deposit rate is the same or higher than the national average:

  • Rhode Island has an unemployment rate of 10.9% and average deposit rate is 0.82%.
  • California with an unemployment rate of 11.9% offers an average deposit rate of 0.76%, and
  • Florida with an unemployment rate of 10.8% offers an average deposit rate of 0.76%.
  • Nevada and Mississippi with high unemployment rate of 12.5% and 10.4% respectively, offer deposit rates below the national average (see Figure 2).

Are Low Interest Rates Slowing Rather than Stimulating Growth?

by tom 17. June 2011 15:47

Slow-Economic-Growth-CrossroadsMarket Rates Insight has been tracking deposit rates for more than 25 years, and its unusual to see the kind of stagnation in short-term interest rates that we have witnessed in the past year or more. The Fed continues to maintain interest rates at near zero in hopes of stimulating investment and jump-starting economic growth. As was pointed out recently in American Banker:

“Bernanke's rationale, which reflects the prevailing view among economists, policymakers and Fed governors, is that near-zero rates provide economic stimulus because higher asset prices filter down to increased consumption, and therefore investment and job creation.

“But it's not working that way. In fact, the anemic nature of the recovery compared with those following previous recessions demonstrates the need for an urgent re-examination of the Fed's policy.”

According to the argument offered by author John Michaelson, co-founder of Imperium Partners Group LLC, an investment manager in New York, the continued near-zero interest rate damages the economy in a number of ways:

1. The wealthy are getting wealthier, by as much as $600 billion per year. According to Michaelson, the low interest rates are supposed to increase lending and stimulate job growth, but instead the Fed’s wealth transfers are rewarding shareholders and executives in the financial sector.

2. With little or no return on savings, added pressure is being placed on pension plans, retirement accounts, foundations, trusts, and other long-term investments. The result is a slower recovery since it is delaying a restoration of investor confidence.

3. There is no incentive for the job-producing middle-market companies and small businesses since, by producing a steep yield curve on government and high-quality credits, there is no incentive to lend money to smaller businesses. Why risk lending to smaller business when you can earn easy money lending to the bigger guys?

“In human terms, the Fed's policy means dairy farmers in Iowa are forgoing equipment purchases to save for retirement, charities in Manhattan are reducing services as foundations cut grants, and local governments are laying off teachers to cover pension plan deficits.”

Michaelson bases his argument on what happened in Japan in 1990, when the credit bubble burst and the Japanese brought its interest rate down to 0.25 percent. The pundits say the following decade of stagnation is the result of not bringing rates down fast enough. However, Michaelson argues that it promoted the same “anemic private consumption,” which led to failed stimulus programs and government debt.

Raising interest short-term rates will reverse the trend toward wealth accumulation and provide an incentive to start investing again, which will stimulate the economy. Raising interest rates will give banks an incentive to seek out investments closer to home that would create new jobs, and help restore confidence in their depositors. Or so the argument goes.

What’s your opinion?


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