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New Research from Market Rates Insight Shows Financial Institutions Turning to Relationship Products to Increase Share of Wallet

Latest Statistics Show Banks and Credit Unions Are Using Product Bundles Rather than Interest Rates to Promote Customer Loyalty and Build Deposits

SAN ANSELMO, Calif. (January 21, 2009) – With the current recession and subsequent scarcity of new deposits, banks and credit unions are seeing more competition than ever before, and are focusing on increasing their share of wallet from existing customers. According to new research from Market Rates Insight (MRI, www.marketratesinsight.com/new), a leading research firm that tracks rates for deposits, loans, and fees, more financial institutions are adopting relationship products to attract customers by rewarding them for purchasing multiple products.

"We are seeing two distinct pricing tactics that institutions are using in the current tight and competitive deposit market compared to a similar period during 2000/2001," said Dr. Dan Geller, Executive Vice President of Market Rates Insight. "The first is a lower pass-along of the Fed rate cuts to consumers, and the second is a premium on relationship products."

According to MRI research, financial institutions are not passing along Federal Reserve rate cuts as aggressively as in the past. The last time the Fed lowered its rate by 300 bps was during 2000/2001. During that period, the pass-along for a 12-month CD was 248 bps on average, whereas during the most recent 2008/2009 Federal rate cut of 300 bps, the pass-along was only 191 bps on average – a difference of 57 bps. This is a clear indication of a very tight and competitive deposits market.

In addition, financial institutions are offering a substantial rate premium for depositors, who are willing to have a multi-product relationship with the institution. For example, the average APY for a regular three-, six-, or 12-month CD is 1.85, whereas the average APY for a relationship CD for three, six, or 12 months is 2.15 – a premium of 30 bps. Dr. Geller notes "This measure was designed to encourage existing and new customers to increase their deposit surface with the institution by having multiple deposit products such as checking, savings, CD, and others."

MRI research also shows that, to stay competitive, more banks are using statistical modeling and other tools to optimize product pricing while maintaining their cost of funds. And banks are increasingly relying on competitor optimization, scrutinizing a handful of relevant competitors on a geographic or demographic basis rather than surveying the whole market. And a number of financial institutions are starting to use micropricing, breaking demographic and geographic markets into sub-groups and pricing products accordingly. And institutions are re-pricing products more frequently to stay ahead of the competition.

Market Rates Insight offers a complete set of online tools designed to deliver better competitive intelligence for more precise product pricing. Market Rates Insight's MyRI Web research portal offers a comprehensive set of deposit rate tools that can be organized by competitor, bank products (checking, savings, CDs, etc.), or geographic market. The MyRI BalanceBuilder tool provides an ongoing update of deposit rates, giving subscribers more current pricing intelligence to help them price and re-price with greater precision. For more information, visit www.marketratesinsight.com/new.

About Market Rates Insight

For more than two decades, Market Rates Insight (MRI) has been helping subscribers price with precision by providing banks, thrifts, credit unions, and other financial institutions with accurate market intelligence on deposits, loans, and fees. MRI uses deposit surveys, mortgage and consumer loan surveys, fee and feature studies, scanned ads, new product alerts, and market share and money fund reports to give subscribers the intelligence they need to profitably react to emerging trends. MRI’s products include customized, web-enabled market research tools that report on rates, as well as online searchable databases, gauges, alerts, and dashboards that aggregate key client data to provide real-time views on how they stack up against market competitors.

Market Rates Insight is located in San Anselmo, California. For more information, see www.marketratesinsight.com/new.

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Contact:

Kevin Coyne
Market Rates Insight
877-490-8702
Kevin.Coyne@MarketRatesInsight.com

Tom Woolf
Woolf Media Relations
(415) 259-5638
tomw@woolfmedia.com

 

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