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.
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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 | 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.
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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

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

Weekly Term Accounts APY Spread–Feb. 10

by tom 10. February 2014 16:53

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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Demand for Transparency is Driving New Banking Services

by tom 6. February 2014 18:49

Those in the banking business spend a lot of time talking about the rapid changes in the industry; not only regulatory changes but how technology is putting new demands on banks and credit unions at an ever accelerating rate. For a conservative industry that dislikes change, banking is being dragged kicking and screaming into the new tech-driven 21st century.

The reason for these rapid changes, of course, is customer demand. Consumers are becoming more tech savvy and more accustomed to using technology for transactions, from using services like PayPal for mobile and online transactions to using their mobile telephones to buy coffee at Starbucks. Tech makes these monetary transactions instantaneous, and instantly visible. Consumers expect technology to deliver transparency, and they are starting to expect the same kind of transparency and frictionless transactions from banks and credit unions.

In an article published by BAI Banking Strategies, Chris Skinner, chairman of the Financial Services Club, CEO of Balatro Ltd., calls this the evolution of the “intellisensing” bank. Greater connectivity is promoting real-time data access and increasing expectations for real-time banking. Consumers are expecting their retail purchases and online transactions to be updated on their accounts immediately, and retailers and commercial customers are expecting real-time bank balances to facilitate forecasting and cash flow.  And these expectations will continue to grow with new technology. As Skinner writes:

“The thing that will take this beyond being just a real-time alert is the move to embedding technology capabilities into devices everywhere. Or should that be everywear? After all, we have just started to see the tip of the “internet of things” in 2013 with thermostats, cars and glasses that run on Bluetooth and Wi-Fi. In 2014, this will not be pervasive or predominant, but the idea of having more “intellisense” as everything becomes connected to the internet will be much more notable.”

As with the social media boom, consumers now expect to engage with their bank and the banking process, not just to be sold new services. That means a two-way conversation where consumers get real-time information when they want it, and in return, the bank or credit union senses what they need when they need it and proactively delivers targeted advisory services in real-time. Some banks are already pointing customers to new products and services based on their bank balance or other factors. For example, when a customer applies for a home equity loan it might be time to think about refinancing a home. Or when a customer walks up to an ATM and it shows a low bank balance, the system could recommend overdraft protection services.

Skinner predicts that this kind of intellisensing will become more prevalent over the next two years. Those financial institutions that want to stay competitive will have to find new ways to engage with customers and support two-way, real-time interaction and transparency. Winning hearts and minds, and wallets, will require a new level of customer service,and  a new kind of openness that embraces members and depositors as valued customers.

Weekly Term Accounts APY Spread and Index–Feb. 3

by tom 3. February 2014 16:09

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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APY | National Pricing Indicator | CD Balances | Deposit Products

Mobile Banking is Gaining Momentum Faster than Other Services

by tom 30. January 2014 20:48

Mobile banking and mobile check deposit are one of the fastest growing services in banking, outpacing online bill pay. Or so says a new survey from Novarica published in The Financial Brand.  An article published earlier this week explains that by the end of 2013, demand for mobile banking was up 34 percent over the previous year, with 25 percent of banking customers saying mobile banking is a “must have.”

The same study reveals that 52 percent of customers indicated mobile check deposit is a “must have.” That corresponds to our own “Growth and Revenue Potential of Emerging Financial Services” study, which indicated that 52.2 percent of consumers demand mobile check deposit.

As in other market areas, smartphones are taking over the banking industry. As additional proof, a report in Bank Innovation this week said that PayPal processed $27 billion in mobile payments last year. That’s 15 percent of the company’s total transactions of $180 billion in 2013. And apparently $8.8 billion of those mobile transactions were made in the fourth quarter, demonstrating that mobile payments are gaining momentum.

The combination of non-banking purchases using PayPal and mobile devices is becoming more popular with consumers. The number of active PayPal users is now at 143 million and growing. PayPal added 6 million users in the last quarter of 2013 and reported $1.8 billion in revenue for Q4.

To keep pace, financial institutions are going to have to step up their mobile banking strategy and start offering more mobile capabilities as part of their emerging financial services.

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Mobile Banking | Fees | New Products

Weekly Term Accounts APY Spread and Index–Jan. 27

by tom 27. January 2014 17:51

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 | Deposit Products

Our Latest Research Predicts that Liquidity Risk for CDs is On the Horizon

by tom 23. January 2014 13:16

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 0- for example, history demonstrates that depositors are going to lock their money in short-term accounts without a big bump in interest rates.

Read the analysis by the author of the study, Dr. Dan Geller, executive vice president of MRI. THis article appeared this week in BAI Banking Strategies.


A decade ago, deposit rates exhibited a similar pattern of behavior to the cycle we are currently experiencing. Although the actual rates are much lower this time around, the pattern of declining rates followed by a turning point (in August 2003) is identical to the current period, suggesting that financial institutions will experience a higher level of liquidity risk about one year after rates start rising due to deposits gravitating towards shorter-term certificates of deposit (CDs).

In August 2003, rates of all CD terms started rising after reaching their lowest point in that cycle. Short-term CDs of three and six months stood at 0.92% and 1.09% respectively, mid-term CDs of one and two years at 1.25% and 1.66% and long-term instruments of three, four and five years at 2.11%, 2.46% and 2.90%.

From August 2003, CD rates started increasing continuously for exactly four years, reaching their highest point for that cycle in July 2007, which is when they started decreasing in response to the slowdown of the economy and the beginning of the most recent recession of December 2007 to June 2009. Although the last recession was officially declared in December 2007, the actual slowdown in the economy started in June 2007 because it takes two consecutive quarters of negative gross domestic product (GDP) to constitute a recessionary environment.

While rates of all CD terms increased during the cycle of 2003 to 2007, the marginal rate variance among the various CD terms was not uniform throughout the four-year time period of rising rates. In the first year of the cycle, from August 2003 to August 2004, the variance stayed consistent; however, between mid-2004 and mid-2007, we see the rate variance among long-term CDs shrinking, thus making short-term CDs more attractive.

For example, the marginal rate variance between three- and six-month CDs increased from 17 basis points (bps) to 63 bps during the 2003-2007 cycle. Conversely, the variance between the six- and 12-month CDs started at 17 bps on August 2003, peaked at 51 bps in April of 2006 and declined to 32 bps by July of 2007. The variance between 12- and 24-month CDs started at 40 bps, peaked at 62 bps in October 2004 and declined to only 4 bps by July 2007.

The variance between the 24- and 36-month CDs started at 46 bps, peaked at 55 bps in June 2004 and declined to negative 2 bps by July 2007. The variance between 36- and 48-month CDs started at 35 bps, peaked at 38 bps in July 2004 and declined to 4 bps in July 2007. And the variance between 36- and 48-month CDs started at 44 bps, peaked at 46 bps in April 2004 and declined to 14 bps in July 2007.

The implications of this phenomenon are that depositors will prefer to lock in their money for shorter terms if the rate difference between the terms is insignificant. For example, in April 2007, the annual percentage yield (APY) of a two-year CD was 4.20% and 4.18% for a one-year CD, a rate variance of 2 bps. It is very unlikely that depositors will double the term of their CD for a meager 2 bps in interest yield.

As a result of the shrinkage in the yield differentiation between long- and short-term CDs, banks are likely to experience a shift in deposit balances towards short-term CDs and liquid accounts, which is riskier for banks because these balances can be withdrawn more easily than long-term CDs.

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CD Balances | Banking Trends | Deposit Products


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