This month’s Review highlights notable trends and projections in DCG’s Deposits360°® Cross Institution Analytics database and deposit pricing and volume models.
Pricing Lookback and Current Balance Trends
We are officially in the third quarter of 2024. How time flies! To kick off this month’s Review, let’s look back at DCG’s deposit pricing projections from last summer. As of April 2023 month-end, the average non-maturity deposit from the DCG dataset was priced at 0.90%. Our models predicted that this rate would climb to 1.22% in April 2024. The actual average NMD rate as of this April’s month-end was 1.18%! To be sure, the upward momentum in deposit costs is slowing, but DCG’s models suggest there may be another 9bp of increases over the next 12 months due to new deposits and shifts into higher-yielding products.
Despite some net deposit growth in February and March of this year, the longer-term cyclical trend of net deposit attrition resurfaced again in April as non-maturity deposits contracted more than 1.5% and CD growth was the softest since Q3 2022. The balance gains in February and March were the result of seasonal inflows, and despite offering some evidence that the deposit attrition story may be ending, DCG’s forecast models are still anticipating further net outflows in 2024 if the Fed Funds rate remains at current levels.
Source: Darling Consulting Group Deposits360°®
Many of DCG’s recent deposit strategy discussions with clients have centered around Money Market and Time Deposit accounts and how institutions can leverage these products to protect against further deposit attrition or perhaps even grow their deposit base as we head into summer.
Money Market Trends
Some institutions are having success attracting and retaining MMDA deposits by offering a competitive rate to select high-value customers. Before rolling out a new MMDA pricing strategy, it may help to look at your institution’s recent trends. The following chart shows a simple trend of interest rates for three major MMDA balance tiers within DCG’s Cross-Institution database.
Source: Darling Consulting Group, Deposits360°®
The average rate for balances greater than $250k was close to 3.00%, and this rate has moved sharply higher over the current rate cycle. However, the spread between 3.00% and the average rate on newly funded CDs (4.77%) is still quite wide, leaving room for institutions to consider the benefits of selectively offering higher MMDA rates to protect against attrition while lowering the added cost of new funding when compared against CD Special or wholesale funding rates. Here is a look at recent balance trends for these same balance tiers.
Source: Darling Consulting Group, Deposits360°®
Interestingly, when considering recent balance trends for each of the MMDA balance tiers, the >$250k tier has grown modestly over the last nine months and the <$100k tier has been relatively flat, while the $100k - $250k tier has contracted. If these trends are representative of activity within your institution, it may be time to revisit the pricing and/or product strategy for middle balance tier customers.
Time Deposit Trends
With market expectations that the Fed may begin cutting rates in September, institutions have begun to eliminate 12-to-17 month promotional offerings, as evidenced by the recent decline in balances. However, DCG continues to see institutions promoting Specials in the 6-to-12 month term range, as these offerings may allow pricing flexibility in the back half of 2024 or the front half of 2025.
Source: Darling Consulting Group, Deposits360°®
DCG is also closely watching the trend in CD rollover activity. As CDs reach maturity, the percentage of accounts rolling into the same account at maturity has steadily declined. By definition, this means that an increasing percentage of maturing CDs are either rolling into a new account or being withdrawn.
It is a worthwhile exercise to look at the flow of maturing CDs for your institution and understand what is happening to promotional rate offerings. Are they rolling into a similar term at significantly lower rack rates? If so, are they sticking around? We see many examples of CDs that roll into rack rate offerings at 0.50% to 2.00% only to early withdraw in the subsequent month. Now may be a good time to consider how to optimize pricing on regular CD products to increase the likelihood of retaining CD funding at a time when liquidity is at a premium.
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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