Deposits360°® Monthly Industry Review
The following Review highlights key trends in the Deposits360°® Cross Institution Analytics database and deposit volume/pricing models.
Looking back on the current rate cycle which began some 19 months ago, we have seen hundreds of institutions roll out new deposit products designed to protect and grow deposit balances.
As you build your deposit growth forecast for 2024, consider how well your successful product launches performed, and what level of growth you expect for these products in the upcoming year. Can you realistically expect that products that have grown steadily will continue to at the same pace?
For net growth rates associated with new product offerings within the Cross-Institution database, balances tended to grow at a healthy clip for the first six months after product launch. Between Month 6 and Month 15, growth rates began to taper, but still remained above 5% per month. Beyond 15 months, growth rates stabilized and products began to behave more consistently with seasoned deposit products.
Keep in mind that these are average growth rates observed over multiple rising and falling rate cycles. Many factors can influence the growth expectations of new product offerings, including product positioning, promotion, availability of similar-priced offerings in a product suite, and barriers to entry such as minimum balance requirements.
Turning to current overall balance trends, total deposit growth continued to teeter just below 0% as ongoing CD growth replaced non-maturity deposit outflows. NMDs have only one month of net growth since the beginning of the current rate cycle.
Non-maturity balance projections over the next 12 months are foreshadowing continued funding challenges. We expect balances to contract another 10% in a baseline environment in which the Fed keeps rates unchanged. If the Fed were to see an uptick in inflation numbers and has to resume further rate hikes, the balance outflow could be more severe.
High-tier MMDA rates continue to increase more rapidly than their lower-tier counterparts. The average rate for MMDA balances between $500k and $1MM increased 6bp since last month. The 75th and 90th percentiles for this balance tier increased to a greater extent (20bp and 22bp, respectively). MMDAs >$1MM are paying 3.19% on average, a 7bp increase since last month. For this balance tier, 75th and 90th percentile rates increased 17bp and 9bp, respectively.
On the CD side, the biggest rate increases over the last month occurred in the 1-5 month term (up 26bp) and the 36-59 month term (up 24bp). For 90th percentile rates, the biggest increases were seen in the 36-59 month and 60+ month buckets. 90th percentile rates are now between 4.50% and 5.50% across the full term spectrum. We will continue to watch the pricing dynamics occurring within CD portfolios as the yield curve evolves.
DCG’s Deposits360° pricing models are forecasting that MMDAs will increase 31bp to 2.78% if the Fed holds rates steady. If the Fed tightens another 100bp, we project the average MMDA rate to jump to 3.17%, which would imply a 69% beta over the next 12 months. If we look back six months ago, the implied rising rate beta for MMDAs was 88%, indicating that projected betas are decreasing as the Fed slows the pace of rate hikes and the industry adjusts to the current pricing environment.
Optimizing balance tier pricing will be crucial heading into 2024, and the Deposits360° Forecasted Deposit Study will soon allow you to look at your balance and rate projections separately for each balance tier. Look for this new feature in the coming weeks.
Darling Consulting Group will continue to monitor the Cross-Institution data in Deposits360° and bring you insights to help you manage your deposits going forward.
To learn more about how DCG's Cross-Institution analytics can help drive strategic decision-making, click here.
© 2023 Darling Consulting Group, Inc.