This month’s Review highlights notable trends and projections in DCG’s Deposits360°® Cross Institution Analytics database and deposit pricing and volume models.
Pricing Trends
Deposit rates continue to nudge higher in the new year. However, the pace is slowing, and some targeted rate reductions are emerging in CD portfolios and tiered MMDA accounts. On the MMDA side, month-over-month increases to competitive offering rates (90th Percentile in the graph below) have slowed considerably, and there was a slight decrease in the $250k-500k balance tier. Institutions have also begun lowering rates on select CD products, as seen in the 1-5 Month term. It’s worth noting that the 90th Percentile rate for 60+ Month CDs jumped in the last month as some depositors sought to lock in yield in advance of potential Fed rate cuts.
Now is the time to look at CD portfolio concentrations and upcoming 2024 maturities to inform strategic pricing discussions. Are there opportunities to selectively test rate reductions for specific products or customers? If so, how would your institution measure success?
The Deposits360° pricing model projects an additional 10bp of non-maturity deposit rate increases over the next 12 months if the Fed maintains its policy rate at 5.25%-5.50%. If current market consensus prevails, and there is an easing of the Fed Funds rate in 2024, NMD portfolio rates may likely end the year flat to slightly lower (-1bp if the Fed eases by 100bp over 12 months). Until the Fed starts to ease, however, we may expect some continued incremental gains in NMD interest expense.
Source: Darling Consulting Group, Deposits360°®
Balance Trends
Total deposits grew modestly in two of the last three months, which is about as good of a takeaway as one may draw from the graph below. Non-maturity deposits contracted and time deposits continued to grow. However, the growth rate in CD portfolios has fallen steadily over the last 12 months. If CD growth winds down, it becomes more difficult to predict potential catalysts for deposit growth in 2024.
Source: Darling Consulting Group, Deposits360°®
Inflow/Outflow rates reinforce trends on the total balance front. After a period in 2022 when existing balance decays and growth in opened account balances were both moving higher, both metrics are now declining. This points to a slower rate of ‘churn’ in deposit activity, as existing balances run off more slowly (referred to as ‘burnout’) while new account balances are unable to maintain enough growth to offset the runoff. Deposits360° users may continue to monitor inflow/outflow rates and use the Cross-Institution data as a benchmark in strategic discussions.
Source: Darling Consulting Group, Deposits360°®
Turning to recent CD maturity trends, the Rollover to Same Account rates in DCG’s Cross-Institution database are now at an 8-year low point. This signals that CD customers are increasingly willing to shop for new CD Specials (versus rolling into rack rates) at maturity. Some depositors are electing to shorten their duration by moving balances into more liquid product types, as evidenced by the increase in the Rollover to Another Account metric. Lastly, Attrition rates are on the uptick, pointing to the lasting competitive landscape in the CD space.
Source: Darling Consulting Group, Deposits360°®
Darling Consulting Group will continue to monitor the Cross-Institution data in Deposits360° and bring you insights to help you manage your deposit portfolio.
To learn more about how DCG's Cross-Institution analytics can help drive strategic decision-making, click here.
© 2024 Darling Consulting Group, Inc.
