After a red-hot 12 months, the growth in certificates of deposit is starting to cool.

During the last week of May, consumer deposits grew at an annualized rate of 11.4% - the smallest rate of increase recorded so far this year, according to Federal Reserve data. These CDs - up to $100,000 - were growing at a blistering 40.9% at their peak in early February.

The slowdown is the first sign of weakness in the CD market since the instruments returned to the limelight about a year ago. They had languished for two years as record-low interest rates drove consumers to mutual funds.

Experts say the reversal is a natural consequence of the slackening economy and the stabilization of interest rates.

"It was bound to slow down," said Gary Ciminero, chief economist for Fleet Financial Group, Providence, R.I. But he said the trend shouldn't worry bankers. "You have to remember that two or three years ago it was minus $2 billion or $3 billion a week."

To be sure, bankers are still reporting steady increases. Small CDs now hold $911.5 billion, the highest level in almost three years.

And while rates on the benchmark one-year certificate of deposit have fallen in recent months, the current average rate of 5.36% is still about 2.5 percentage points higher than the average yield on a money market or passbook, according to Bank Rate Monitor, a North Palm Beach, Fla.-based newsletter.

Bankers have begun to feel the effects of the rate-driven slowdown, and are altering their marketing strategies.

In May, Summit Bancorp, Chatham, N.J., stopped advertising its CDs in local newspaper and radio ads because its rates have become less attractive in recent months.

"At the beginning of the year, we were offering 6.75% on a 20-month CD," said Stephen T. Emer, Summit's senior vice president in charge of marketing. "Now we are offering only 6%."

Mr. Emer added that the range of rates offered by competing banks in his area has also shrunk. "Now, no one bank has any particular rate advantage."

Currently, he said, Summit, a $5.5 billion-asset banking company, is taking a more modest approach to luring CD funds: a 50-basis-point bonus on a CD if a customer opens the account with outside funds exceeding $5,000.

Some of Summit's competitors, including First Fidelity Bancorp., UJB Financial Corp., and Midlantic Corp. have either stopped advertising CDs or done so only sporadically in the past month, he said.

Mr. Emer said that many banks are now focused on promoting home equity loans as more people search for ways to pay for home improvements.

Fleet's Mr. Ciminero attributes some of the weakening in CD growth to the recent stock and bond market rallies, which "may have diverted some of the money that would have gone into certificates of deposit."

But he added that the growth in small time deposits will continue because it is fueled in large part by small banks that depend on CDs to build up deposits.

"Banks, especially small banks, can mainly fund themselves by these means, and they will keep rates high in order to fund their loans," Mr. Ciminero said.

Still, some bankers said their CD inflows continue to be strong despite the national slowdown.

"I look at the numbers every day, and it has still been about $1 million a day for us," said Pat B. Frost, president of Frost National Bank, San Antonio.

Since mid-February, Frost National has pulled in more than $70 million of certificates of deposit, boosting total deposits almost 9%, Mr. Frost said. He attributes the steady business to a "smart public" that "recognizes a good deal when they see one." People who had been buying Treasury instruments "have come home to CDs."

Many banks continue to court CD customers to help bring in assets used to fund loan demand. Frost National's fresh deposits have gone to help fund its commercial loans, which are mostly made to small businesses in the area.

- John Kimelman contributed to this report.

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