Deposits360°® Monthly Industry Review
This month's Review highlights key trends in the Deposits360°® Cross Institution Analytics database and deposit volume/pricing models.
For the ninth month in a row, non-maturity deposits contracted within the Cross-Institution database, albeit to a lesser extent compared to the previous three months. Conversely, the CD growth rate reaccelerated higher after declining over the previous two months. Many institutions have rolled out premium-rate short-term CD Specials in order to retain rate-sensitive balances and attract new money.
Looking at Average Account Balance trends, we see that the average CD account balance has now crossed the $40k threshold. This is a 25% increase from levels in February 2020 at the onset of the COVID pandemic. The bulk of this growth occurred over the current rising rate cycle. Average non-maturity deposit account balances are also higher than they were at the start of the pandemic. However, these balances have been moving lower in the current rate cycle.
Business account balances have declined steadily over the last year, falling roughly 10% from their high point in August 2022. Retail account balances have been more resilient, falling about 6% in Q3 2022 before rebounding and trending higher in 2023. As long as wage growth stays elevated and the labor market remains strong, it will be interesting to see if, and for how long, these trends might continue.
On the pricing front, high-tier MMDA rates continue to move higher, with the biggest increases in the 500k-1MM and >1MM buckets (+13bp and +8bp, respectively). 90th percentile rates are approaching 4.00% at the top tier. On the CD side, terms between 6 and 18 months are priced, on average, in the mid-4s. Meanwhile, 90th percentile rates are near 5.00% for all terms from 1 to 24 months. The data tells us that depositors are still adding time deposit balances, even as the terms are getting shorter.
Non-maturity deposits are still priced below 1.00%. The biggest source of rising interest expense for most institutions is coming from the time deposit base, where the average newly opened CD rate is now at 4.50%. Despite CDs only making up 20% of the current portfolio volume, they contribute almost 43% of total deposit interest expense.
In lieu of paying 4.50% to 5.00% on new CD Specials, some institutions are making the decision to selectively promote premium money market accounts, where there is more room to increase rates and more flexibility to walk the rates back down in the future. The following chart shows the MMDA rate percentiles for the Cross-Institution database.
As the saying goes, the devil is in the details, which means that your institution should be aligned on the objective of any potential deposit promotion. Are you pricing for retention, or growth? If growth, are you selectively targeting existing customers or are you targeting a new market? Or both? What is your plan for limiting cannibalization of existing accounts? Are your MMDA balance tiers affording you adequate pricing flexibility?
By aligning on objectives and messaging, you can help optimize your outcome. In the meantime, Darling Consulting Group will continue to monitor the Cross-Institution data in Deposits360° and deliver 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.
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