Deposit rates across the country began to fall Monday in response to the half-point cut in the discount rate last week.

Many institutions said they would cut deposit rates by as much as 50 basis points.

Most banks lowered their prime lending rates to 6% from 6.5% last Thursday, when the discount rate was cut. Some of the new deposit rates are now scraping bottom at 3% and lower.

Risk of Lost Business

Bankers know they risk alienating consumers, who are already disappointed about low rates on passbook savings accounts and certificates of deposit, and are upset about high rates on credit cards.

"We're very concerned about losing customers," said James in Detroit.

However, many bankers said they have no choice. Their major source of earnings in recent quarters has come from the spread between low borrowing costs and relatively high returns on investments and loans. That gap will close if they don't pass along lower deposit rates, though some are not making the full 50-basis point cut.

"With lower rates and smaller margins, we are doing business on the edge," said Margaret Quinn, assistant vice president in charge of deposit products for U.S. Bank of Washington. "We are being pushed into a corner."

Ms. Quinn said Monday that her bank expected to make a decision on new deposit rates later in the day.

BankAmerica, Chase in Lead

Among banks that moved quickly to cut deposit rates were the lead subsidiaries of California's BankAmerica Corp. and New York's Chase Manhattan Corp.

The West Coast banking behemoth on Friday took its passbook savings rates down to 2.75% from 3.25%. Its six-month certificates of deposit were cut to 3.10% from 3.30%.

Chase took similar action on Friday, lowering its passbook savings rates to 3.0% from 3.5%. Its six-month CD rates fell to 3.15% from 3.25%.

Some bankers said they do not fear dropping rates even lower.

"How low is low?" asked Philip E. Peters, executive vice president of Boatmen's Bancshares in St. Louis. "I think we're within 25 to 50 basis points of the absolute bottom."

Continuation of Trend

The latest round of cuts sustains a trend that began about three years ago. The average rate for passbook savings fell from 5.17% in April 1989 to 3.45% in April 1992, according to Bank Rate Monitor. The average national rate for six-month CDs fell even more precipitously, from 9.09% in April 1989 to 3.63% on July 1.

Although some bankers worry that customers may bolt in big numbers to mutual funds and the stock market, others say that depositors are limited in their choices.

"The public is reacting with caution," said Ms. Quinn of U.S. Bank. "We won't see money flying out of the bank."

Other bankers said the worst damage has already taken place.

A New Environment

"We are in a rate environment that has not been seen in 20 years or more," said Bruce Mason, first vice president at Citizens First National Bank in Glen Rock, N.J. "It's that environment that people have to get used to."

Added Andrew Will, manager of consumer deposit products at Norwest Corp.: "For consumers, we don't believe there is a great deal of difference between 2.65% and 2.85%."

Bankers believe that they will continue to benefit from the conservative investment patterns of the average depositor. Though Wall Street was offering handsome returns last year, many investors returned to banks as the rally fizzled.

"There is always a place for bank depositors," said Linda Boborodea, director of marketing for East New York Savings Bank, which dropped its passbook rate 20 basis points to 3.75% and its six-month CD rate to 3.44% from 3.59%.

Meanwhile, the rate drops will encourage some bankers to move more aggressively into alternative investment products such as mutual funds and annuities, some consultants said.

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