This month’s Review highlights notable trends and projections in DCG’s Deposits360°® Cross-Institution Analytics database and deposit pricing and volume models.
Changing Landscape
Despite some positive rate and balance trends, institutions will need to be data-dependent when executing deposit strategies to meet budgets in 2025. DCG’s Cross-Institution deposit forecast indicates that the industry is still not back to “normal” regarding expectations for deposit cost relief and balance growth in 2025.
Much has changed since the pre-COVID years when institutions could often count on steady deposit growth. Technology has made it easier to move funds quickly and with considerably less effort. Factor in a renewed focus on wholesale borrowings, increased regulatory scrutiny, and intensifying competitive pressures, and it’s clear that institutions are navigating a complex environment where deposits are more valuable and more critical to long-term strategy.
Deposit Growth Trends
Over the recent Fed tightening cycle, institutions became much more reliant on CD Specials to retain deposit balances. For many, incentivizing CD growth was of vital strategic importance, and CDs grew at a rapid pace, offsetting meaningful non-maturity deposit outflow. However, over the last couple of quarters, NMD balances began to stabilize as CD growth decelerated. Successful deposit management will necessitate a well-balanced set of product offerings as CD Special rates are walked down.
Source: Darling Consulting Group Deposits360°®
Considering the data by product and institution type can offer additional insight into what is driving balance trends.
For Banks, Checking and Savings accounts have flattened out after several quarters of contraction, while Money Markets balances are growing modestly. Meanwhile, the rapid growth that occurred in CD Specials is flattening out as offering rates decline.
Source: Darling Consulting Group Deposits360°®
For Credit Unions, Share Drafts have been the most resilient product from a balance standpoint, with most of the 2022-2023 outflow coming out of Regular Shares and Money Markets. These products are now beginning to see some growth while Share Drafts remain flat. Interestingly, while CD Special growth begins to slow, Regular CDs are picking up the slack as institutions right-size their rack rates in line with the current yield curve.
Source: Darling Consulting Group Deposits360°®
How will deposit portfolio balances react to further Fed rate cuts in Q4? Let’s take a fresh look at DCG’s NMD rate and volume model forecasts…
Non-Maturity Deposit Trends
The lagging impact of rising market rates on deposit pricing was on full display over the last several quarters. Notably, NMD rates have risen 20bps over the last year. However, DCG rate forecasts now project that NMD rates will decrease by 1bp over the next 12 months if the Fed holds its benchmark rate at its current level (4.75% – 5.00%). How quickly individual institutions respond to rate adjustments will depend on their current position and primary goals related to managing liquidity and earnings. If liquidity remains adequate and Fed expectations remain clear, DCG anticipates that institutions will move funding costs down more quickly. However, if uncertainty around future rate paths and liquidity lingers, deposit rates may continue to lag the market.
Source: Darling Consulting Group Deposits360°®
On the volume side, DCG projects NMD portfolios will trend within a narrow range, with growth expectations ranging from 1% to 2% over the next 12 months. Those institutions that are budgeting a significantly higher growth rate may need a high level of execution with an emphasis on growing checking accounts to maintain margins. If rates reverse course again and rise another 100bps, DCG expects further NMD outflow to rear its head again.
Source: Darling Consulting Group Deposits360°®
Time Deposit Trends
Many institutions began cutting their most competitive CD rates before the Fed made its first rate cut in September. The 50bp rate cut spurred additional pricing adjustments, contributing to a 17bp decline in CD rates over the last month. However, history tells us that there may still be a lot of rate adjustments needed to bring offering rates back to their normal spread to wholesale borrowing rates. This is particularly true for 1 Yr CD Special portfolios.
Source: Darling Consulting Group Deposits360°®
One of the challenges with managing CD portfolios in a new falling rate environment is developing a game plan for rollovers and training front-line staff on how to manage rate negotiations as they arise. Many of DCG’s Deposits360° power users are leveraging the application to segregate and identify relationships that are CD-only versus relationships that have multiple accounts (for example, they may have one or more Checking and/or Savings accounts). These cohorts have dramatically different CD attrition rates at maturity.
Source: Darling Consulting Group Deposits360°®
Institutions should monitor upcoming CD maturities and have a plan for those single-account relationships that ask for a rate upgrade at or before maturity. Some institutions may decide to let these customers walk, while others may seize the opportunity to require additional deposits or a checking account in exchange for rate enhancement.
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.
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