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  • Writer's pictureAndrew Mitchell

Deposits360°® Monthly Industry Review

Deposits360°® Monthly Industry Review

Deposits | Analytics | Interest Rates

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This month's Review highlights key trends in the Deposits360°® Cross Institution Analytics (CIA) database and deposit volume/pricing models.

Balance Trends

In the Sept 2022 Review, we made the following observation: “Our deposit growth forecasting model shows that if rates continue to rise (+200bp), industry NMD balances are expected to flatten and then trend lower in 2023.” We now know that rates did, in fact, move up another 200bp (225bp to be more precise), and industry NMD balances have been trending lower throughout 2023. Today, the forecasting model projects continued downward pressure on NMDs in 2024.

NMD Balance Forecast Chart

Although these are sobering projections, we know that not all of these deposits are leaving the banking space. A portion has simply shifted into time deposits, and we expect this trend to continue into 2024. For institutions heading into budget season, it will be critical to quantify the extent to which they expect to capture NMD outflow with CD growth. Taking a look at recent trends (3-month lookback and 12-month lookback) may be a good place to start building the narrative for deposit expectations in 2024.

Deposit Mix Chart

While CD portfolios continue to grow, it is timely to share some balance trends with these portfolios. First, consider the rate at which maturing CDs roll into the same account at maturity. This rollover rate is currently at the lowest point in CIA data history, which signals that customers are increasingly looking for either higher-rate products or additional liquidity flexibility as their CDs mature. At the same time, CD attrition (balance declined at maturity and did not move into another product) levels remain elevated, pointing to higher levels of churn within the portfolio.

CD Maturity Trends Chart

Pricing Trends

On the pricing side, Deposits360°® forecasts another 25bp of rate increases within non-maturity deposit portfolios over the next 12 months. This is assuming that the Fed has finished raising rates and will keep its benchmark rate static for at least another year. The graph below also shows how non-maturity deposit costs are expected to move if the Fed were to raise another 100bp or cut rates by 100bp over the next 12 months. In either scenario, the pent-up pressure within deposit portfolios may continue to push overall costs higher in the short term. In fact, the forward-looking rate beta in an Up 100bp is forecasted to be 43% between now and next July.

NMD Interest Rate Forecast Chart

MMDA rates are still moving higher across all balance tiers. The biggest lift this month is in the $1MM+ bucket, which rose 14bp. In the 90th percentile rates, the range between low-balance and high-balance offering rates widened considerably. Competitive low-balance ($0 - $10k) tiers are priced at 1.42%, while high-balance tiers eclipsed 4.00% (currently 4.11% for balances >$1MM). CDs priced between 6 and 18 month terms average 4.50%, while 90th percentile rates are over 5.00% for all terms from 1 to 24 months.

Interest Rate Summary Table

For new 1Y CD Special account openings, 90th percentile rates increased since last month but remain below the Fed Funds rate. In the last tightening cycle, the 90th percentile rates eclipsed Fed Funds, indicating that we may still have some catching up to do on the CD side.

1YR CD Special Rate Trends Chart

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.

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