Interest Rates On CDs To Decline
SAN ANSELMO, Calif.-Deposit interest rates are expected to drop during October, according to the latest projection from Market Rates Insight.
The focus of the interest rate reduction will be in CDs of 3, 4 and 5 years, projected to decrease nationally by 4, 5 and 6 BPs, respectively. Liquid accounts, such as checking, savings and Money Market accounts, are projected to remain low and unchanged.
During October, the national average interest rate for CDs is projected to decrease three BPs to a national average rate of 0.59%. Among the different CD terms, the five-year CD is projected to have the greatest decrease of six BPs to a national average rate of 1.22%, whereas the 4, 3 and 2-year CDs are projected to decline by 5, 4, and 3 BPs, respectively.
The national average interest rate for checking, savings and MM accounts is projected to remain flat at a national average of 0.14%. Checking account national average is projected to remain flat at 0.11%, savings account flat at 0.16% and MM flat at 0.16%.
"This trend indicates that banks and credit unions continue to experience pressure on their net interest margins due to low demand for, and low rates on loans," said Dan Geller, EVP at Market Rates Insight. "As long as lending demand remains soft, expect institutions to continue decreasing interest rates on deposits in order to control interest expense."
For info: www.marketratesinsight.com
Study: FIs Buying Accounts
ATLANTA-With interest rates rendered virtually useless as a point of competitive differentiation, savings providers are looking for strategies to help them compete for savings deposits.
Almost nine in 10 consumers in the market for a savings product in the next year said they would find some type of incentive to be very appealing when selecting a savings provider, according to a recent research study by SYNERGISTICS Research Corp. entitled, "Innovative Savings Programs."
In the survey, consumers were asked which of a number of possible incentives would be very appealing to them when choosing a financial institution to open a new savings account or other savings product. Overall, close to nine in 10 respond to at least one type of savings-related incentive. Cash bonuses are most attractive, as a $125 bonus for opening a checking and savings account at the same time tops the list. Only slightly fewer respond to a $25 bonus deposit to their account with no minimum deposit requirement, gift cards that require a $1,000 minimum balance for one year, or a $50 gift card for reaching a balance of $1,000 when setting up automatic monthly transfers from checking to savings.
Fewer respond to a gift of merchandise such as a DVD player or iPod.
The SYNERGISTICS study featured a national online survey of 1,020 consumers age 18 or older.
For info: www.synergisticsresearch.com
Branches Slump, Deposits Jump
CHARLOTTESVILLE, Va.-A preliminary look at the FDIC's 2011 Summary of Deposits data shows the number of branches in the U.S. fell for the second consecutive year, while deposits jumped 7%, said SNL Financial LC.
According to the data, U.S. deposits rose to $8.25 trillion from 2010 to 2011, outstripping the 2% deposit growth that occurred between 2009 and 2010.
Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. remained in the top four spots in terms of total domestic deposits, but U.S. Bancorp replaced PNC Financial Services Group Inc. in the No. 5 spot, pushing PNC to sixth place.
Dennis Gibney, a managing director with FinPro Inc., said the results are consistent with what he has been hearing from clients. "Based upon the low-rate environment and the volatility of the market, what we are finding is deposit customers have been hoarding cash in financial institutions," he told SNL. This in turn is creating an inverse liquidity trap whereby banks are flush with cash with a limited amount of investable assets at reasonable yields, Gibney said.
Likewise, Michael Driscoll, vice president of the U.S. Financial Institutions Group at DBRS Ltd., said the jump in deposits comes as no surprise, given the high level of risk aversion among depositors.
"People are just sitting on cash. They are not too worried about yield because it is pretty difficult to find without taking some risk," he told SNL.
The number of U.S. branches declined to 98,202, down 315 from the 2010 count. This marks the second year of branch consolidation after years of expansion.
FinPro's Gibney said the decline in branch count is consistent with the cost-control measures that his clients are considering to manage their noninterest expense, thanks to the pressures on spread and margin.
According to the data, Wells Fargo and Bank of America continued the previous year's trend of reducing their branch count, losing a combined total of 387 branches.
"They are digesting mergers from the first crisis," DBRS' Driscoll said. "A lot of [branches] that are nearby they'll just close so they can keep the business and get rid of the cost."
An FDIC spokesperson said the regulatory agency plans to release highlights to supplement the Summary of Deposits data in early November of this year.
"There have been lots of mergers and there were some failures, but we are really just beginning to do the analysis on this data," she told SNL.
