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  • Writer's pictureAndrew Mitchell

Deposits360°® Monthly Industry Review

Deposits360°® Monthly Industry Review

Deposits | Analytics | Interest Rates

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

Balance Trends

The general theme of 2023 on the balance front has been non-maturity deposit contraction and time deposit growth. However, for the second month in a row, CD growth has been unable to offset outflows in non-maturity deposit portfolios. It is becoming increasingly more difficult to attract new CD deposits as more institutions adjust their pricing and saturate the market with similar levels of competitive rate offerings.

Deposit Monthly Growth Trends Chart

The pressure on non-maturity balances is expected to continue. DCG’s forecasted volume model projects NMD runoff at the industry level regardless of whether the Fed pauses its rate hikes, moves them 100bp higher, or cuts rates by 100bp.

NMD Balance Forecast Chart

One of the key questions bankers have been wrestling with during this rate cycle is, “How much do I need to raise my rates in order to maintain or grow deposits?” To better understand this dynamic, we looked at MMDA balance trends since January 2022. We grouped MMDA products based on the degree to which their prices have increased over the current cycle. Interestingly, the only group that experienced balance retention is the group of accounts that have repriced by more than 300bp.

MMDA Balance Trend Chart

MMDA products that have repriced 100bp or less over the current rate cycle have declined in balance by about 20%. To take this analysis a step further, consider that the MMDA category typically comprises non-premium and premium products. When we isolate premium-rate MMDA products (products which repriced 100bp to 200bp higher in the 2015-2019 rising rate cycle), we see an even greater balance response.

MMDA Balance Trend 2019 Chart

In this chart, we can see that premium-rate MMDA accounts that have been repriced aggressively have been able to grow in the current rate cycle, while those whose prices have lagged have seen outflows approaching 40%. The key takeaway is that institutions that have lagged rate increases on premium rate products have seen and will see material outflows.

Pricing Trends

On the pricing front, premium Savings products (products in the 75th and 90th percentile ranking) increased by 29bp over the last month, highlighting the fact that institutions are strategically promoting non-maturity deposit specials to retain and attract new deposits in the current environment. MMDA rates have also increased for all balance tiers, with the biggest hikes occurring in the $250k-$500k and $500k-$1MM buckets (+13bp).

The inverted yield curve continues to reflect expectations that the Fed will need to cut rates beginning in 2024, and this dynamic is putting a brighter spotlight on term funding decisions. Because of this, we now see short-term CDs (1-to-5 and 6-to-11 month terms) pricing up aggressively (55bp to 78bp over the last month, respectively). These short-term structures are quickly catching up and, in some cases, exceeding the prices offered on longer-term CDs. 90th percentile CD offerings are approaching 5.00% for any structure 24 months or less.

Interest Rate Summary Table

As we consider projected rate levels, we see continued upward pressure and expect that average non-maturity deposit rates will increase by at least another 25bp over the next 12 months. If the Fed reverses course and begins to tighten rates by 100bp, we still expect to see 11bp of residual upward momentum in rates due to the severity and timing of the Fed’s rate hikes in the current cycle.

NMD Industry Rate Forecast 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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