Weekly Term Accounts APY Spread and Index–March 17

by tom 17. March 2014 16:47

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 Balances

Millennials Fed Up with “Old School” Banking

by tom 13. March 2014 15:49

Are banks becoming obsolete? Is the age of the Bitcoin and e-commerce going to make frictionless transactions so easy that consumers will have little use for banks?

That’s the immediate conclusion you might draw from the results of a three-year survey, The Millennial Disruption Index.  As reported in American Banker this week:

Over half (53%) of millennials say that nothing sets their personal bank apart from its competitors, according to the survey by Scratch, a brand consultancy division of Viacom. One in three said that they would consider switching to a new bank within the next 90 days. And the nation's four-largest banks — JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC) and Citigroup (NYSE:C) — are among the 10 least-loved brands in the survey, which asked respondents for their impressions of 73 companies in 15 industries.image

In the minds of the up-and-coming generation of prospective banking customers, online transactions rule and traditional banks are obsolete. The survey shows that more than half of millennials are counting on emerging technology to completely change the banking industry, another 68 percent predict that consumers will access money in a completely new way in five years, and 70 percent expect a new way of making purchases. As a result, 33 percent of millennials indicated they won’t need a bank AT ALL in the  future, and 73 percent would rather bank with Amazon, Apple, PayPal, or Google.

As if to prove the survey findings correct, this week the Milwaukee Journal Sentinel reported that more than 25 percent of U.S. households do not have traditional bank accounts.

Reloadable, prepaid cards are winning out as an alternative to checking accounts, and Mercator Advisory Group reports a 28.5 percent increase in prepaid card use in 2012 over 2011; a market value of $1.6 billion. Experts say that fees for these prepaid alternatives to bank accounts have declined and new services make these cards more versatile.

Not all the big banks are waiting to watch their millennial customers walk away. Bank of America is offering a new checkless checking account designed to appeal to millennials. The account has a fixed $4.95 monthly fee and uses no paper checks. The idea is to build loyalty with younger customers by charging lower fees and offering an account with online and card transactions only; something with which the new generation of customers are very comfortable. The new account also eliminates other fees, such as a minimum balance requirement or overdrafts, making it more appealing to consumers.

The idea, of course, is to win millennials loyalty early and then upsell later with savings plans, mortgages, car loans, and other services. Where other banks uses prepaid cards to collect added revenue from swipe fees and overdraft charges, Bank of America isn’t raking in added fees at a flat $4.95 per month, but they are securing a future customer base.

Weekly Term Accounts APY Spread and Index–March 10

by tom 10. March 2014 16:43

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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Banking Trends | National Pricing Indicator | CD Balances

Will Online Banking Eclipse Brick and Mortar Financial Institutions?

by tom 6. March 2014 16:48

We can learn something new from the Chinese. A story that ran earlier this month in the New York Timesreported that last June Chinese e-commerce company Alibaba offered Chinese depositors a better rate than Chinese banks – 7 percent as opposed to 3.3 percent from brick-and-mortar banks. By February more than 81 million Chinese customers had signed up for Alibaba money market accounts. Alipay, which is Alibaba’s fund, now has $40 million US under management making it the largest money fund in China. Not bad for six months work.

So why can’t the same thing happen here?

Asia has been outpacing North America in a number of financial trends, including digital banking. The digitalization of money has made transactions easier than ever without going to a branch or ATM. In China, more than 65 percent of mobile phone users use their phones to access the web, and in India 55 percent of all Internet access is expected to be via smartphone by 2015. This means online banking is easy and portable. A 2012 McKinsey study found that 70 percent of Indian customers acquired a credit card online and 53 took out personal loans, all without setting foot in a bank.

The new generation of bank customers is more Web-savvy than ever. They use their smartphones to buy movie tickets or coffee, and some banks are tying credit cards to smartphones so you can pay by SIM card, or you can bypass the banks altogether and accept payments via smartphone. Today’s bank customers are used to living in the virtual world, and using the web to manage their money is no big deal.

As technology and consumer attitudes continue to evolve, there is a real possibility that customers may leave brick-and-mortar banking for the Web in search of convenience and rates. There are arguments to be made for both types of banking, but if you can get better rates, apply for loans, and get your credit cards online, the only reason to go see your banker is to get cash or for more personal customer service. If you are looking for a better deal on interest rates, then online banks continue to offer a better deal.  Online banks continue to offer very attractive rates for savings and CDs.

So as depositors get more comfortable with cloud-based banking, will traditional banks become obsolete? The online banks have much lower overhead and can compete on a global scale, which may give them a real advantage over brick –and-mortar institutions. But will depositors ever be ready to abandon their current banks in search of better rates?

What are you doing to compete with online institutions? Do you see online banking as a threat or a flash in the pan? We’d love to hear your opinion.

Weekly Term Accounts APY Spread and Index– March 3

by tom 3. March 2014 16:32

 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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APY | National Pricing Indicator | CD Balances

Do Consumers Really Care About Free Checking?

by tom 27. February 2014 18:46

It’s no surprise that financial institutions are raising fees to make up for revenue shortfalls. What may be surprising is that consumers don’t really seem to notice.

According to a report by MoneyRates.com, during the last six months of 2013 fees for account maintenance, overdraft fees, and ATM fees all increased.  Large banks tend to post higher fees than small- and medium-sized banks in  many areas.

At the same time, the number of free checking accounts hit an all-time low – 29 percent of the market. The number of large institutions offering free checking fell to 20.26 percent at the close of 2013; down from 22.28 percent six months earlier. And the number of small banks offering free checking rose by a negligible amount from 35.64 to 35.65 percent. Sixty-three percent of online banks offer free checking.

According to a December study by the Federal Reserve Bank of Kansas City, the Durbin Amendment actually made more free checking accounts available. This makes sense since it was anticipated that smaller banks could offer free checking since they were exempt from the Durbin debit-card swipe-fee cap.

And consumer don’t really seem to care. According to a story published this week in American Banker, customers aren’t abandoning their banks because they don’t get free checking any more. Jim Miller, senior director of banking at J.D. Power, says that the consumers who were sensitive about paying bank fees left a long time ago. Our own Dr. Dan Geller, executive vice president of MRI, said, “"The reality is, most people who say that they are going to leave [a large] bank because of maintenance fees on checking do not leave." The better services and greater convenience of more ATMs and branches is more important than free checking for most customers.

But what about customers looking for new banking services? While fees are not much of an incentive to abandon their bank, those shopping for a new bank often look at fees first. However, banks continue to make it easier for consumers to bank for free with attractive service bundles. The more commitment the customer is willing to make to a bank, the more services they can get for free. So even if consumers become complacent about fees, to stay competitive financial institutions need to offer consumer-friendly service bundles and continued customer support, or they see a customer exodus.

Weekly Term Accounts APY Spread and Index–Feb 24

by tom 24. February 2014 16:26

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

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National Pricing Indicator | CD Balances | Building Deposits

Will the Post Office Step In To Serve the Underbanked?

by tom 20. February 2014 13:36

The financial services industry has been talking about the “underbanked” for years; those families in the lower financial tier who don’t have a checking or savings account and use non-bank services like pay-day loan companies and check cashing services. According to a new report by the Office of the Inspector General of the US Post Office, 68 million Americans are among the underbanked, and they spent about $89 billion in 2012 in interest and service fees – an average of $2,412 per household, or about 10 percent of their annual income.

Why is this report from from the Office of the Inspector General? Because the struggling postal service is looking to the underbanked as a possible source of new revenue. According to an article in the Huffington Post contributed by Senator Elizabeth Warren of Massachusetts:

That is why the OIG report is so interesting. If the Postal Service offered basic banking services -- nothing fancy, just basic bill paying, check cashing and small dollar loans -- then it could provide affordable financial services for underserved families, and, at the same time, shore up its own financial footing. (The postal services in many other countries, it turns out, have taken steps in this direction and seen their earnings increase dramatically.)

Is the post office a viable threat to the banking industry? Probably not, but they are picking up the slack among a large group of Americans who desperately need affordable bank services. If the underbanked are paying more than $200 per month in interest fees, it would seem logical to try to serve those customers with better banking products that cost them less and mean more revenue for banks.

This report from the USPS OIG is just the latest indicator that new competition is emerging from non-banking areas. The prepaid card industry continues to blossom, for both the underbanked and to supplement those who have bank accounts but also want the security and convenience of prepaid cards.

Clearly, those at the bottom of the economic spectrum will continue to struggle to pay day-to-day expenses, and new services will continue to emerge to support the underbanked. The Post Office is the latest organization to pick up the pace with new offerings, along with Wal-Mart, American Express, and others. Time will determine if the USPS is up to the task. My question is whether banks and credit unions are missing an opportunity by not offering services designed for more than one-quarter of these American households – that’

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New Products | In The News | Banking Trends

Weekly Term Accounts APY Spread and Premium Index–Feb 17

by tom 18. February 2014 17:03

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

Tags: , , ,

National Pricing Indicator | CD Balances

Deposit Rates Will Rise: Here are 10 Likely Scenarios

by tom 12. February 2014 17:28

Our latest report, "Likely Scenarios of Rising Deposit Rates in 2014 and Beyond", offers a glimpse into the future of deposit rates based on historic trends. These trends can be valuable for setting deposit rates. How will rising deposit rates affect the banking industry? The author of the study, Dr. Dan Geller, executive vice president of MRI, shared 10 likely scenarios in this week’s BAI Banking Strategies:

The question about rising deposit rates is not “if” but when and to what degree they will rise. The timing of the rise in rates is relatively easy to project because rates are dependent on economic conditions. From a macro perspective, we are likely to see gradual and sustained improvement in the economy in 2014, provided, of course, that no unexpected or highly unlikely event occurs.

Among the many signs of improvement in the economy, I will mention just one significant factor that is very likely to impact rates. Personal consumption, which makes up about 70% of gross domestic product (GDP), gradually improved throughout 2013. In the first quarter of 2013, it increased 1.1% over the previous quarter, 2.5% in the second quarter and 4.1% in the third quarter. Simply put, this means that consumers are spending much more, which leads to an increase in economic activities and borrowing.

In the absence of a crystal ball, the only way to develop likely scenarios of rising rates is to analyze previous occurrences and study their behavior. The 10 likely scenarios described below derive from our analysis based on the behavior of deposit rates during the last rising-rate cycle, from July 2003 to July 2007:

  1. Once rates start rising this year and beyond, the banking industry will face relatively higher interest expense per-deposit dollar due to the inelasticity of consumer deposits. This means that in order to maintain or increase balances, banks will have to increase rates at a greater pace than the increase in balances.
  2. During the rising rate period, the largest percentage gain in deposit balances is likely to be in money market accounts (MMDA) while the largest percentage decrease in balances is likely to be in checking accounts.
  3. Rates of term accounts are projected to increase in a general linear pattern with minor hiccups, which is easier to project and budget.
  4. Rates of liquid accounts are projected to increase in a general down-curved pattern, which makes it harder to project and budget. 
  5. The increase in rates of deposit products is going to be moderate, gradual and volatile, which will require constant monitoring of the competitive set.
  6. Deposit rates are not likely to exhibit big jumps month over month.
  7. Whether rates increase in a general linear or curved pattern, rates of all deposit products are likely to fluctuate throughout the rising-rate period.
  8. Expect national average rate increases to range from one-half to one basis point per month per product. There will be noticeable variations among the regions.
  9. Predictors of rising deposit rates vary by product and include the Fed fund effective rate, the 3-month and the 6-month LIBOR rates.
  10. Since the starting point of the rate increases, i.e. current rates, is so low, it will take much longer for deposit rates to reach their pre-recession level.

The above scenarios should serve as a roadmap for rising rates. Institutions should start budgeting higher interest expense and plan for a shift in product balances in accordance with the complete analysis. Not being prepared for rising rates is no longer an option.

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Banking Trends | Market Research | Deposit Products


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