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 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.
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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 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.

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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 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:

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Weekly Term Accounts APY Spread and Index–July 1

by tom 2. July 2013 17:34

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–April 22

by tom 22. April 2013 16:42

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–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.

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

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.


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