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.

Weekly Term Accounts APY Spread and Index–January 28

by tom 28. January 2013 17:07

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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Location, Location, Location–The Myth of Virtual Banking

by tom 25. January 2013 13:19

Everyone seems to be talking about virtual and mobile banking. More banks and credit unions are looking to attract customers with virtual services that remove the need to ever visit a branch. At the same time, banks are closing more branches than they are opening. According to a report today from CNN Money:

U.S. banks closed 2,267 branches in 2012 while opening only 1,149, SNL Financial estimated – a net loss of 1,118 branches nationwide. It was the highest number of closures since the firm began keeping records of them in 2005.

However, it seems that demand for convenience and having a bank branch in your neighborhood is still an important criteria for consumers who are seeking banking services. According to a recent study by Novarica and FindABetterBank.com, having local branches available is important to consumers seeking a new banking relationship, no matter what their age:

The prevailing belief among financial marketers today is that younger consumers don’t care about bank branches while older consumers prefer branch banking. But Novarica cautions that sweeping generalizations like these can be misleading. Novarica found a surprising 58% of those under 30 would not consider opening an account at a bank without a branch nearby. And conversely, 64% of those 50 or older say they can imagine a time when they will do all their banking virtually.bankmachine

The location of branch banks and ATMs close to home and work is an important consideration  for 71% of those surveyed, and 50% said they had banking transactions that could not be completed at an ATM or online. Very few of those surveyed, 29%, said that they considered visiting their branch bank “onerous.”

In fact, younger depositors seem to be among those most worried about the number of ATM locations. Overall, 11% of respondents said ATM and branch locations were the most important factor. In fact, 58% said they would rather visit a teller to make deposits.

Clearly consumers still want to see their friendly neighborhood banker, especially to open new accounts and deal with unusual financial problems. While transactions such as withdrawals, transfers, and balance queries are moving outside the branch bank, many consumers still want a storefront bank to transact their business.

So what’s the solution for banks looking to remain competitive? How can banks maintain a competitive edge and still cut back on overhead from local branches? Perhaps its more streamlined branches with fewer staff and more targeted services. Banks also will have to do a better job at nurturing customers with integrated banking services, so whether they are using an ATM, doing online banking, or visiting their local branch, customers can be assured that there is a professional available to help them and offer service. Another way of thinking about it is going beyond virtual banking to offer virtual branch banking.

What do you see as the future for branch banking? Please offer your insights – we’d love to hear from you.

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Banking Trends | Consumer Confidence | Market Research

Weekly Term Accounts APY Spread and Index–January 22

by tom 22. January 2013 18:00

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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Credit Unions are Gaining Ground While Bank Business Declines

by tom 16. January 2013 18:47

With the current downturn in deposits, consumers are abandoning banks for non-profit credit unions according to a recent article by Motley Fool contributor Rich Smith. Reporting on a recent report by the National Credit Union Association (CUNA), credit union membership hit a record high in 2011, then exceeded it’s record with a new high of 93 million members in the second quarter; the largest quarterly increase since 2008. Clearly, consumers are looking for more from their financial services providers than banks have been providing lately.

A recent report from SNL Financial states that credit unions are gaining in a number of areas:

Credit card loans to consumers from credit unions rose $2 billion over Q3 2011 levels, exceeding $38 billion, a 5 percent increase. During the same period, credit card loans from commercial banks were at $669 billion, down from $671 billion in the third quarter of 2011. According the Smith:

The surge of interest in credit unions stems in part from recent highly publicized efforts by commercial banks to load up their customers with new fees -- on debit cards, on checking accounts, on ATM withdrawals. As well, there's the banks' role in the 2008 financial crisis, which came close to destroying the American economy. And toss in the banks' tooth-and-nail fight to preserve high interest rates, high service fees, and "universal default" policies on credit cards for a third.

Where  credit unions are winning the hearts and wallets of their members is through services. Where all Downpatrick_Credit_Union,_February_2010the large commercial banks used to offer free checking accounts, since 2009 the trend has changed and almost no banking institutions offer free checking these days. By contrast, 38 of the top 50 of the largest credit unions offer free checking to members. And where the interest rate for platinum tier cards averages 9.9 percent with banks, rates are as low as 5 or 6 percent for credit union credit cards.

Credit cards are also leading in loyalty programs, including rewards credit cards that provide airline miles, credits on purchases, and even cash. Interest on these types of cards average 11 percent among commercial banks, but credit unions offer robust rewards programs with interest rates at 7.5 to 6.25 percent. One credit union, the Educational Systems Federal Credit Union, even offers platinum and rewards cards at rates as low as 3.25 percent.

With tough times, consumers are shopping for better rates and terms over convenience and other factors, and credit unions are able to offer a more attractive options, particularly as banks continue to add new fees and raise existing fees to make up for low deposit rates. Banks need to find new,consumer-friendly services that will attract depositors, or they will need to find other tools and bundled products to win back depositors.

Weekly Term Accounts APY Spread and Index–January 14

by tom 14. January 2013 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.

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–January 7

by tom 9. January 2013 10:10

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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Banking Trends | Blog | National Pricing Indicator | CD Balances

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.

Future of Banking: From Transaction Processor to Service Provider

by tom 3. January 2013 13:48

Every year, Market Rates Insight develops a trend analysis for the coming year. In this year’s imageDeposit Trends and Analysis for 2013, our research team has uncovered two trends that will transform the banking industry in the coming year: 1) a migration from processor to provider and 2) a shift from brick to click. We will review these and other trends identified in the report here in the weeks ahead, starting with the transition from processor to service provider. (The complete report is offered as a bonus to subscribers of the weekly Deposit Pricing & Trends Projections. If you wish to subscribe to our weekly market insight reports, please drop us a line at info@marketratesinsight.com.)

According to Market Rates Insight analysis, financial institutions continue to differentiate their offering by providing financial services that consumers want. With increased competition for consumer finances from Internet banks and companies like Wal-Mart who are providing bank-type services, banks and credit unions have come to realize that they need to offer more than merely processing checking transactions, debit payments, and funds transfers.

Banks and credit unions are looking beyond the back of the house, seeing new ways to work with consumers by providing convenience services powered by emerging Internet and mobile technologies. To compete more effectively, banks are providing services that attract consumers by supporting emerging lifestyle trends, rather than merely processing transactions. A recent Market Rates Insight study on service fees reveals that cyber security, mobile banking, and other services that promote banking efficiency and convenience are growing in demand, and consumers are willing to pay a premium for these services in return.

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.

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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