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–Jan. 6

by tom 6. January 2014 18:21

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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APY | National Pricing Indicator | CD Balances

2014 Will Be the Year of Agility and “No Excuses” for Bank Technology

by tom 2. January 2014 17:19

Happy New Year to our blog followers. In poking around the Web to see what the industry experts are saying about trends in the coming year, Kathy Burger, Editorial Director of Bank Systems & Technology, had some interesting insights in an editorial posted earlier today predicting that 2014 will be a year of change in the banking industry.

Specifically, she anticipates the coming year to be characterized by new challenges in the areas of compliance and competition, and many financial institutions will have to cope with outdated computer systems while trying to keep pace with the market and customer demands. Most importantlyimage, banks and credit unions can no longer wait until they are forced to implement the next technological change. New competitors from PayPal, Wal-Mart, and non-banks, and new customer expectations will force banks to be more proactive stay competitive. As Burger writes:

I think it will all come together in a renewed prioritization on agility. Agility has been a goal of financial institutions for many years, but we finally have reached a point where the technologies, management perspectives, market conditions and business conditions have advanced and aligned to a point where it's no longer aspirational. Banks need to be able to identify and respond (not react) to changes and opportunities, and they need to be able to do it efficiently. The capabilities to do this are available now to any financial institution -- we are officially in the era of "no excuses."

Based on our research, we know that consumers are tired of the same old, same old from banks and credit unions. Mobile technology and the Web are fueling new consumer expectations, and driving demand for a new breed of technology-driven banking services. Financial services such as mobile banking, peer-to-peer transfer, online and location couponing, and other convenience services, many powered by the new generation of smartphones, and becoming commonplace and institutions that can’t offer such lifestyle services will be left behind.

Financial institutions will need to demonstrate agility in order to stay abreast of technological changes and customer expectations. The new era of “no excuses” means financial institutions need to be more aggressive in delivering these new services.

Our research also shows that banks and credit unions will be rewarded for embracing technological innovation that meets new customer demands. Where we have seen a backlash from customers unwilling to fund new service fees for check writing and routine banking, they are willing to pay a premium for lifestyle convenience fees, such as mobile banking, with an even higher premium for bundled value-added services.

So here’s wishing you a prosperous New Year filled with innovation and new services that deliver greater profits.

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Consumer Confidence | Fees | Market Research

Weekly Term Accounts APY Spread and Index–Dec. 30

by tom 31. December 2013 12:56

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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APY | National Pricing Indicator | Market Research | CD Balances

Consumers Hate Fees But Would Rather Gripe than Switch Banks

by tom 27. December 2013 11:40

What causes consumers to change banks or credit unions? Customer dissatisfaction comes in many shapes and sizes, but a recent survey of 2,000 consumers by MoneyRates.com reported by The Financial Brand reveals that despite complaints about fees, bank closures, and bad customer service (the top three complaints), customers don’t change financial institutions.

imageAmong the complaints made by consumers, fees topped the list. A credit union survey found that 60 percent of consumers said they would leave their current bank of credit union if they didn’t get free checking. However, 31 percent of consumers said they were pleased with the fees they were paying. Only 39 percent of banks currently offered free checking in 2012, down from 45 percent in 2011, and the number of checking accounts with no maintenance fees dropped 5 percent.

Bad customer experience ranked number two as the biggest consumer complaint. Only 2 percent of those surveyed found customer service to be the best thing about their checking account provider. The MoneyRates.com survey said one in five consumers said they would switch over bad service, but only one in 10 actually do.

Consumers still want the convenience of branch banking. If those surveyed, 40 percent said branch convenience was one of their top two priorities. However, branches process only half the number of transactions they did 20 years ago; specifically a decline of 45.3 percent since 1992 according to one study.

So if consumers aren’t going to the branches, they must be doing more banking online. The survey showed that 83 percent ranked their provider’s online banking as “excellent” or “very good,” and 46 percent said that easy online banking ranked number one or two as their most important criteria when looking to open a checking account.

The truth is that most consumers would rather gripe than switch. Research from Deloitte says that 74 percent of customers are “satisfied” or “very satisfied” with their primary bank. However, these same consumers are willing to take a survey to tell you what they don’t like about banking services. Only 12 percent of consumers have actually changed banks in the last two years, and of those, one in 10 switched because of relocation, and 39 percent cited fees as the main reason to change; that’s only 4.7 percent of consumers.

What this survey does tell us, however, is even if consumers aren’t ready to change financial institutions, considerations like fees and customer service are top of mind with customers. When they do relocate, or decide that excessive fees, bad customer service, or some other factor forces them to make a change, bank fees will be top of mind when they do choose a new bank. To remain competitive, banks and credit unions need to rethink their fee strategy so they can use value-added services, like mobile deposit and online banking to bring in new customers. Our research shows that the right combination of value-added services not only increases revenue but improves customer loyalty as well.

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Weekly Term Accounts APY Spread and Index–Dec. 23

by Tom 23. December 2013 16:52

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 | CD Balances | Market Research

Capital One Taking the Lead in the Race for Digital Banking

by tom 20. December 2013 13:45

According to a report in Bank Innovation this week, Capital One Financial is going digital in  big way. According to CEP Richard Fairbank, almost two-thirds of Capital One customers are using online and mobile services.

Capital One has more than 16 million deposit accounts and is one of the largest credit card issuers in the United States, so the fact that they can claim two-thirds of their customers are online or mobile demonstrates a clear trend. It also shows that Capital One is moving ahead of its competitors for digital services.

The article notes that Bank of America reports about 30 million active online users, which is less than half of its total 66 million deposit account holders. Most other financial institutions are reporting mobile imageenrollments of about 20 percent of their customers. The article also notes that Capital One is one of the largest consumers of postal services to mail credit card offers. With broader adoption of online banking, that strategy could change.

The push for mobile and online services creates some new service possibilities for financial institutions. Capital One, for example, already has a deal with PushPoint to make geocentric offers like concert tickets to customers via their mobile app. Combining location-based services with mobile banking offers a number of joint marketing and service possibilities well beyond directing bank customers to the nearest ATM.

Mobile payments are shaping up to be the next major front for mobile banking. Amazon recently acquired Gopago, a software maker creating mobile apps that let consumers use their smartphone to prepay for goods before they pick them up, and that gives retailers another point-of-sale option. With Amazon looking at digital point of sale, it looks like they are getting ready to take on more established e-payment players like PayPal. While banks and credit unions are currently waiting in the wings, this is a logical arena for them to offer future mobile banking services.

It’s all about capitalizing on convenience. Our latest research study, “Growth and Revenue Potential from Emerging Financial Services,” clearly shows that consumers want and are willing to pay for convenience services. Mobile banking tops the lost for many. Mobile deposit, location-based coupons, and mobile photo bill pay are on the top of the list. When you create the right service bundle, consumers have indicated they are willing to pay from $10 to $12 in fees per month for the right combination of services.

Digital convenience banking is here today, and the innovators will be the one to reap the benefit.

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Weekly Term Accounts APY Spread and Index–Dec. 16

by tom 16. December 2013 17:04

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

Making the Most of Overdraft Transfer Fees

by tom 12. December 2013 16:26

It seems that overdraft revenue for banks and credit unions is on the rise.

According to a recent report by American Banker, overdrafts were on the rise in the third quarter as consumers struggle to pay their bills as the economy slowly recovers. Much of the uptick in overdrafts is being blamed on the effects of the government shutdown and automatic tax increases from the beginning of the year. As American Banker reports:

“Lenders took in an annualized $31.8 billion in overdraft income — a 1.6% increase from the previous period, according to a quarterly report from economic research firm Moebs Services. While average overdraft fees held steady at $30, consumers overdrew their accounts more frequently. The average customer overdrew his or her account 7.1 times annually, compared to an average of seven times in the previous period.”

This is good news and bad news for banks and credit unions, but it’s mostly bad news. While financial File:Dollar sign (reflective metallic).gifinstitutions are seeing a slight increase in revenues from account overdrafts, it also means that their depositors and members are on shaky financial footing. According to Moebs service, the quarterly increase in overdraft revenue is a drop in the bucket and doesn’t have much impact on the bottom line. However, this does offer banks and credit unions a chance to throw a lifeline to struggling consumers.

Our report on “Growth and Revenue Potential for Emerging Financial Services” reveals that overdraft transfer services matter to customers. Our research shows that 48 percent of consumers current have some kind of overdraft protection in place, but another 39 percent want such protection. And they are willing to pay on average $3.11 per month or as much as $4.34 for such services.

In these troubled economic times, bundling overdraft transfer protection with other desirable financial services can net financial institutions $10 or more per month in fees for services that consumers actually want. And protecting consumers from overdraft fees is a great way to build customer loyalty and show your willingness to stand behind depositors while building fee revenue.

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Weekly Term Accounts APY Spread and Index–Dec. 9

by tom 9. December 2013 20:37

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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APY | National Pricing Indicator | CD Balances


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