This month’s Review highlights notable trends and projections in DCG’s Deposits360°® Cross Institution Analytics database and deposit pricing and volume models.
Emerging Time Deposit Trends
DCG monitors the rate at which depositors choose to renew their maturing CDs (CD rollover rate) versus moving funds into a different product or withdrawing funds entirely. CD rollover rates began decreasing at the industry level in Q4 2021, just months before the onset of the Fed’s tightening campaign to fight elevated and persistent inflation readings.
This trend made sense in a world where institutions began competing for deposit growth via CD Special products. As rates increased, depositors became increasingly comfortable moving funds into higher-priced offerings. However, now that markets expect a Fed pivot and term rates have lowered, rollover rates have stabilized and begun to increase again.
Source: Darling Consulting Group Deposits360°®
CD rollover rates stabilized for multiple reasons. First, there are simply not as many opportunities to ‘trade up’ for a higher yield. The most competitive CD Special rates (90th percentile) have been slowly decreasing at the industry level for the last couple of quarters. Second, and perhaps most notably, regular CD rate offerings are returning to levels that provide enough incentive to retain maturing CD Special dollars.
There is also an appreciable spread between regular CD offering rates for high-balance relationships (>250k) versus lower-tier relationships (<100k), which points to more institutions implementing a strategic game plan for exception pricing as Specials come due. For example, Deposits360° users can segment customers with upcoming CD maturities to optimize pricing based on characteristics such as relationship size, checking account balances, and number of accounts in the relationship.
Source: Darling Consulting Group Deposits360°®
With expectations that the Fed will begin to lower the Fed Funds rate in September, institutions have continued to steer customers into short-term products. In fact, the average CD term weighted by balance has been steadily declining since the beginning of the current rate cycle, which began in Q1 2022. However, the data is signaling that while terms for Special CDs and Public CDs are contracting, Regular CDs are contracting more quickly. This is another indication that Regular CDs, which were largely left out of recent strategic focus, are now playing a bigger role in deposit retention playbooks. For example, many expiring CD Specials with terms between 6 and 11 months are rolling into regular 6 Month CDs versus rolling into the same or similar Special.
Source: Darling Consulting Group Deposits360°®
Pricing Trends
DCG compiles Cross Institution rates using account-level data files, which means that actual offering rates, including negotiated rates, are captured in the data. These rates can, and often do, differ greatly from posted or publicly available rate sheets.
One noteworthy trend this month is in the 90th Percentile rates. These are the rates that rank in the 90th percentile within DCG’s full dataset. Pricing levels for this competitive tier have decreased month-over-month for checking accounts (NOW), savings accounts, and money market accounts (driven by a decrease in the $1MM+ tier). Given that nearly the entire yield curve has moved materially lower since the end of June, we anticipate that CD pricing may be materially impacted in the coming months.
Source: Darling Consulting Group, Deposits360°®
Balance Trends
Migration, Migration, Migration! While the velocity of dollars trading into higher-yielding accounts has slowed considerably since last year, balances continue to shift between products. This is driving total deposit costs higher for most institutions, even while these same institutions are making strategic rate cuts within their product offerings.
On the balance side, DCG’s forecasted volume model still projects a 3% - 4% decline in non-maturity balances over the next 12 months. To be sure, some of this outflow will be retained in CD balances. However, given the expectation of rate cuts on the horizon, many institutions are successfully executing on rolling out premium savings accounts, which may provide greater pricing flexibility in the future as the incentive to lock out funds diminishes.
Source: Darling Consulting Group, Deposits360°®
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.
© 2024 Darling Consulting Group, Inc.
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