Banks Unfazed by Runoff of Billions in CDs
Instead of urging consumers to roll over nearly $150 billion in certificates of deposit maturing this month, bankers are quietly watching some of the funds slip into other accounts or out of their hands altogether.
Neither banks nor consumers seem pressured to renew the time deposits, which have lost their popularity with the decline in interest rates.
"We are not naive about the interest rate cycle we're in," said Mitchell Ratliff, Chase Manhattan's group marketing manager for liabilities products. "Chase is now offering more alternative products to CDs. Our basic strategy is a relationship strategy. CDs are only one component."
Moreover, with interest rates the lowest in years, consumers are not eager to lock up their money for six months or longer.
At the same time, anemic loan demand has put an end to banks' voracious appetite for stable funds.
"Banks are not so concerned about losing deposits, especially expensive [term] deposits, because they don't have loans to put them in profitably," said Cynthia Glassman, research director at the consulting firm Furash & Co.
October often brings a surge in the amount of CDs maturing. Thousands of savers bought their first long-term CDs when the rates were deregulated in October 1983, and others bought them in October 1987 after the stock market crashed. The tax cycle also contributes to the surge: consumers use April tax refunds to buy CDs, and their six-month certificates mature in October.
Big Retirement Schedule
This month, banks are due to retire more than 10% of $1.1 trillion in outstanding CDs.
In the past, most CD holders have simply rolled over their money into new CDs. But plunging interest rates have made this year different. One-year CDs are yielding just 5.48%, compared with 7.83% a year ago, according to Bank Rate Monitor.
As a result, investors are looking for higher-yielding alternatives. More than a fourth of the investors responding to a survey commissioned by Fidelity Investments said they were very like to switch to a different investment with the cash from their maturing CDs.
Chase Manhattan rolled over fewer CDs than usual in the third quarter, Mr. Ratliff said. Chase's retention rate - the proportion of CD dollars it rolls over into new CDs when certificates mature - dropped below 80% for several weeks in the third quarter, compared with a normal rate of nearly 85%.
But by marketing other products, Chase was able to lure 15% of the CD funds into other investment vehicles, instead of only 10% in previous years.
Unlike previous years, few banks are looking for ways to lure savers back into CDs.
No Reason to Bid
"There isn't really that much temptation to go out and bid a little higher to get the money. You don't really have anywhere to put it," said a spokesman for Barnett Banks Inc., in Jacksonville, Fla.
At Barnett, a number of customers seem to be switching out of CDs and into money market accounts, the spokesman said. Consumer CD balances dropped 10% in the 12 months ended Sept. 30, but money market account balances increased by a third.
A few banks still are courting CD holders. BankAmerica Corp. launched a CD marketing campaign in late September that will run until early November. Consumers who buy new CDs of $10,000 or more receive bonus rates or bonuses of up to $200.
And some banks are offering CDs with special options that allow customers to switch to a higher rate if interest rates rise before the certificates mature.
But these undertakings appear now to be exceptions. Most banks are sitting back this month, biding their time.