Weekly Term Accounts APY Spread and Premium Index–December 26

by tom 27. December 2011 19:58

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 Premium Index–December 19

by tom 19. December 2011 16:21

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 Premium Index–December 12

by tom 12. December 2011 15:17

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.

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:

The Missed Opportunity of Deposit Inelasticity

by tom 7. December 2011 09:27

The following article appeared last week on Banking Strategies/BAI.org and was written by Dr. Dan Geller, Market Rates Insight’s executive vice president and our head of market research.

Banks are understandably upset about the decline in their fee revenues caused by recent regulatory changes but they should also be kicking themselves for missing another revenue opportunity right under their noses. We're talking here about the $150 billion they could have saved on interest expense by accelerating the pace of interest-rate decreases over the last four years in the wake of the financial crisis. We can now say, with the benefit of hindsight, that accelerating this pace would not have lowered the liquidity level of banks; in fact, deposit balances would have continued to increase regardless of the decline in interest rates!image

The key factor missed by most bankers has to do with the inelasticity of federally-insured bank deposits during a period of intense economic turmoil and public fear. An elasticity analysis of the relationship between deposits’ annual percentage yield (APY) and balances, since the start of the recession in December of 2007, shows that bank deposits are among the most inelastic of commodities, even more so than gasoline, which is highly inelastic due to its absolute necessity. The latest figures on deposit balances and APY indicate that the long-term elasticity of deposits is 0.22 (highly inelastic) compared to 0.58 for gasoline. The closer the elasticity figure gets to 0.00, the less sensitive is demand to changes in price, or APY in the case of deposits.

In the four years since the recession started, interest expense at financial institutions insured by the Federal Deposit Insurance Corp. (FDIC) has fallen by about $300 billion, from $372 billion in 2007 to an estimated $75 billion by the end of this year. Meanwhile, total deposit balances surged from $8.4 trillion to $10 trillion dollars during the period – a historic record. Had banks conducted an elasticity analysis in 2008 and 2009, they could have detected the unusually high level of inelasticity between deposits’ APY and balances and could have accelerated the pace of rate decreases. Such acceleration could have reduced deposits rates to their current level but much sooner, perhaps as early as 2008. Moreover, understanding the reason deposit balances exhibit such high inelasticity to APY could have provided banks with the confidence to accelerate the pace of rate decreases.

The reason for this inelasticity is that there is simply no substitution for insured deposits as a “safe” place to park your money. Typically, demand for a product is more sensitive to price changes in the long run because consumers change their behavior over time by either reducing consumption or by finding a substitute product. For example, when gasoline prices go up and stay high for a long time, consumers tend to buy more fuel-efficient cars (hybrid or electric), drive less and/or use more public transportation. However, in the case of deposits, there is no other way to ensure that the principal amount is 100% safe, as in the case of insured deposits. All other options, such as equities, mutual funds, bonds and alike, carry some level of risk to the principal.

While there’s no use crying over spilt milk, it’s not too late for bankers to leverage this unusual level of inelasticity to reduce interest expense. We estimate that about $75 billion dollars in interest expense remains to be recovered by assertive deposit price reduction as long as savers lack an alternative in the current shaky economy.

Weekly Term Accounts APY Spread and Premium Index–December 5

by tom 5. December 2011 16:50

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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Deposit Accounts APY Projection for December 2011

by tom 28. November 2011 17:14

Each month, Market Rates Insight offers a projection of national APY performance for the coming month. During this month, the national average APY for Regular term accounts is projected to decrease 1 bps to animage APY of 0.60%. The national average APY for Special term accounts is projected to decrease 2 bps to an APY of 0.94% (see Figure 1).

Among Regular term accounts, there will be a slight decrease of 1 bps in the 3, 6, 12, 48 and 60-month CDs to the an APY of 0.13%, 0.21%, 0.33%, 0.99% and 1.24% respectively. Among the Special term accounts, the 3 and 6-month CDs are projected to decrease 3 bps each to an APY of 0.32% and 0.52% respectively. The 24 and 60-month CDs are expected to decrease by 2 bps each to an APY of 0.85% and 1.29% respectively.

Liquid Accounts Projection

The national average APY for Regular liquid accounts is projected to remain flat at 0.14%. The national average APY for Special liquid accounts is projected to increase 1 bps to an APY of 0.47% (see Figure 2). image

Regular checking account APY is projected to remain flat at 0.11%; whereas savings and Money Markets will decrease 1 bps each to and APY of 0.15% each. Among the Special liquid accounts, checking is no longer offered, and savings is projected to remain flat at 0.65% and Money Market Special is projected to increase by 2 bps to an APY of 0.29%.

Note: The monthly APY projection for deposit accounts is based on national averages and has a confidence level of 95%. Identical projection for individual pricing regions (states) may be ordered. This projection accounts for customary fluctuation in economic indicators such as Fed funds rate, inflation and others. However, the projection may have to be revised if a drastic change occurs in some of the economic indicators during the projected month.

Weekly Term Accounts APY Spread and Premium Index–November 21

by tom 21. November 2011 15:59

Every week, 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 Premium Index–November 14

by tom 15. November 2011 11:18

Every week, 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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Regaining Lost Fee Revenues via Deposit Rates

by tom 9. November 2011 12:17

Our senior vice president, Dan Geller, recently offered this article to Banking Strategies. It’s an interesting commentary on what is driving deposit profits on the current market climate.

The introduction of the $5 debit card fee and its subsequent withdrawal can teach us two lessons: one, consumers are very sensitive to any additional banking fees, and two, there are more productive ways to improve the bottom line through a reduction in interest expense.

recapturing_lost_revenueBanks can generate nearly double the potential $875 million in monthly debit card fees just by lowering their deposit rates by as little as 0.01% a month. The $875 million figure is arrived at by calculating the total potential for debit card fees if each of the 175 million U.S. adults with bank accounts pays $5 per month. A decrease of 0.01% in the current national average deposit interest rate reduces interest expense for banks nationally by about $1.5 billion a month, which impacts the bottom line in the same way as earning this amount through fees.

In 2010, interest expense on deposits at FDIC-insured banks was $107 billion, or an average of $9.2 billion per month, compared with an average $7.7 billion as of June of this year – a decrease of $1.5 billion a month in average interest expense. The national average interest rate for deposits was 0.80% at the end of 2010 and 0.74% in June of this year – a decrease of 0.06% in six months or an average decrease of 0.01% per month. Thus, maintaining the “normal” decrease of 0.01% per month reduces interest expense nationally by $1.5 billion per month, which is nearly twice as much as the total potential income from the $5 debit-card fee if every bank account holder had to pay it.

Will customers react to a slight decrease in deposit rates as they did in the debit fee controversy? Not likely. The refining of deposit rates to the tune of 0.01% a month without adversely impacting deposit balances is possible just by applying higher levels of pricing precision and analytics to avoid deposit mispricing. The leading cause of deposit mispricing is the inability to identify various types of CDs (beyond term and tier) when establishing a rate, meaning a rate is established based on competitive information without the corresponding type of CD next to the annual percentage yield (APY). The APY variance between a regular CD and other CD types, such as the callable CD, can be as much as 39 basis point (bps). Thus, if a rate is set not knowing the type of competing CD, an over pricing of up to 39 bps can occur.

By improving their pricing precision and analytics, banks can maintain a healthy net interest margin and protect their bottom line during the next two to three years until the economy recovers. Better yet, this objective can be achieved with minimal effort and, most importantly, without alienating customers.

Mr. Geller is the executive vice president of San Anselmo, Calif.-based Market Rates Insight, where he oversees the research and analytics services of the company. He can be reached at dan.geller@marketratesinsight.com .

Weekly Term Accounts APY Spread and Premium Index–November 7

by tom 7. November 2011 12:16

Every week, 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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