Sales of certificates of deposit are poised to surge now that commercial banks, benefiting from lower insurance costs, have more leeway to raise rates.

An 83% cut in deposit insurance premiums shaved about $4.4 billion from the industry's annual expenses this year, and a second drop in rates will save nearly $1 billion more next year.

The cost savings are expected to give banks greater flexibility to price CDs of under $100,000 more aggressively at a time when customers are attracted by higher returns on mutual funds and other long-term investments.

At Monroe County Bank in Bloomington, Ind., for instance, the premium cut could translate into a 15-basis-point boost in CD yields. "The savings are something we'll take into account in our pricing from now on," said David Baer, president of the $270.5 million-asset bank.

Even thrifts, which haven't benefited from the premium reduction, are taking heart. They say deposit gathering is easier than it has been in years.

"We can afford to pay out a little more now on our CDs, because it's much cheaper to keep them on the books now than it was 12 months ago," said Robert H. Halleck, president of Maryland Federal Bancorp, Hyattsville, Md. He said premium parity with commercial banks - for which thrifts are lobbying aggressively - would make it still easier to attract deposits.

For the first time in years, banks and thrifts are developing a hunger for deposits, largely because of rising loan demand. Loan volume during the 12 months ended Sept. 30 grew 12.1% - up fourfold from a year earlier, according to the Federal Deposit Insurance Corp.

Despite the need to fund rising loan volume, banks actually saw a decline in CD sales growth during the summer and fall.

According to the most recent preliminary data from the Federal Reserve, CDs grew at an annual rate of 1.8% in November, compared with 14.5% a year earlier.

Edward J. Kane, a professor of banking at Boston College, said banks aggressively priced CDs earlier this year in anticipation that the FDIC would roll back premiums and give banks refunds based on the new rate.

Next year, many of those certificates of deposit will mature, and to ensure that customers roll their money over into new CDs, banks may be compelled to raise yields, Mr. Kane said.

He added that in the years when deposit insurance was much higher, many banks concentrated on building up money market accounts instead of deposits.

Now that the FDIC has plans to roll deposit premiums back to zero for most banks, beginning in 1996, "you'll see more growth in CDs and less emphasis on bank money funds," said Mr. Kane.

However, some bankers maintain that deposit pricing is mostly determined by loan demand.

"CD pricing really falls on our funding needs," said David W. Thomas, senior vice president of retail product development for Banc One Corp., Columbus, Ohio. "Without deposits as a source of funding, we would invariably have higher costs."

Mr. Thomas said that many of his company's banks are "struggling to maintain flat growth in deposits compared to last year," because the flat yield curve makes locking money up in CDs with maturities of two to five years less appealing to consumers.

Nancy E. Graves, senior vice president and director of retail banking for Mark Twain Bank, St. Louis, said the company is "always happy to have as much deposits as will fund loan growth."

"The challenge for us will be to keep our margins while interest rates are declining," Ms. Graves said.

Indeed, there is speculation that the Federal Reserve will lower interest rates even further in the near future. That would put downward pressure on CD yields.

Robert Heady, the publisher of Bank Rate Monitor, North Palm Beach, Fla., expects the Fed to cut short-term interest rates by at least 25 basis points in December or January, with another cut a few months later.

"In past years, if the Fed cut a half a point, typically within the next eight weeks the one-year CD would fall by a third of a percent," he said.

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