Rate wars: Leaders and laggards in repricing consumer deposits
March 15, 2018 10:00 AM
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Rate wars: Leaders and laggards in repricing consumer deposits
Let the rate wars begin.
Since the Federal Reserve last raised interest rates, in December, a few banks and credit unions have aggressively increased the rates they pay on savings accounts, money markets and short-duration certificates of deposit.
This new environment for deposit products creates risks for banks that stand pat. Many community banks have not yet passed along the Fed’s rate hikes to depositors,a decision that could lead them to lose customers to the banks and credit unions that are setting the pace.
To be certain, only a few institutions have quickly raised deposit rates thus far. They are primarily online-only banks, including Goldman Sachs’ Marcus and Capital One 360, followed closely by some of the nation’s largest credit unions.
Large, regional and midsize banks, to this point, have largely stayed on the sidelines.
Data compiled by RateWatch provides some insight into the latest trends, including which depositories have been most aggressive in raising rates and which ones have lagged behind. Here are some of its key findings.
Since the Federal Reserve last raised interest rates, in December, a few banks and credit unions have aggressively increased the rates they pay on savings accounts, money markets and short-duration certificates of deposit.
This new environment for deposit products creates risks for banks that stand pat. Many community banks have not yet passed along the Fed’s rate hikes to depositors,
To be certain, only a few institutions have quickly raised deposit rates thus far. They are primarily online-only banks, including Goldman Sachs’ Marcus and Capital One 360, followed closely by some of the nation’s largest credit unions.
Large, regional and midsize banks, to this point, have largely stayed on the sidelines.
Data compiled by RateWatch provides some insight into the latest trends, including which depositories have been most aggressive in raising rates and which ones have lagged behind. Here are some of its key findings.
Scott Eells/Bloomberg
Goldman Sachs sets the pace
Goldman Sachs' online-only consumer bank, Marcus, has been a pacesetter in offering higher deposit rates.
From the week of Nov. 27, just before the Fed’s December rate hike, to the week of Feb. 19, Goldman boosted the rate for its Marcus savings account by 20 basis points, to 1.49%, according to RateWatch. (The week of Feb. 19 is the most recent data available from RateWatch.) That was one of the highest rates for savings accounts that week.
Goldman also offers one of the best rates on 12-month CDs through Marcus. In the same time period, it increased its rate for that product by 41 basis points to 2.05%, also one of the highest rates for the category. Marcus’ 12-month CD wasstill at that rate as of March 12.
From the week of Nov. 27, just before the Fed’s December rate hike, to the week of Feb. 19, Goldman boosted the rate for its Marcus savings account by 20 basis points, to 1.49%, according to RateWatch. (The week of Feb. 19 is the most recent data available from RateWatch.) That was one of the highest rates for savings accounts that week.
Goldman also offers one of the best rates on 12-month CDs through Marcus. In the same time period, it increased its rate for that product by 41 basis points to 2.05%, also one of the highest rates for the category. Marcus’ 12-month CD was
Capital One takes a two-tiered approach
Capital One Financial is proving that there is more than one way to skin a cat, at least when it comes to deposit-rate strategies.
The McLean, Va., company offers a variety of rates on deposit products, depending on geographic location and on whether the rate is offered through a retail branch or through its online bank, Capital One 360.
Between late November and late February, Capital One 360 increased rates on its savings accounts by 24 basis points to 0.99%, according to RateWatch. In comparison, some Capital One retail branch locations maintained a rate of 0.5% on savings accounts through the same time period.
Rates for money markets also varied, although the roles were reversed: Retail customers enjoyed higher rates than Capital One 360 customers. The rate on a money market with a balance of at least $25,000 was 1.49% in some retail branches, versus 1.39% online.
“We determine our rates by looking at the competitive environment, including market rates, to ensure we’re offering market-leading, compelling products for customers,” said Laura DiLello, a Capital One spokeswoman.
The McLean, Va., company offers a variety of rates on deposit products, depending on geographic location and on whether the rate is offered through a retail branch or through its online bank, Capital One 360.
Between late November and late February, Capital One 360 increased rates on its savings accounts by 24 basis points to 0.99%, according to RateWatch. In comparison, some Capital One retail branch locations maintained a rate of 0.5% on savings accounts through the same time period.
Rates for money markets also varied, although the roles were reversed: Retail customers enjoyed higher rates than Capital One 360 customers. The rate on a money market with a balance of at least $25,000 was 1.49% in some retail branches, versus 1.39% online.
“We determine our rates by looking at the competitive environment, including market rates, to ensure we’re offering market-leading, compelling products for customers,” said Laura DiLello, a Capital One spokeswoman.
CDs: Where the action is
The most movement on rates this winter has been on certificates of deposit, particularly the bellwether 12-month CD.
Online banks have offered some of the highest rates on that product. The $34 billion-asset EverBank, a unit of the asset manager TIAA, is a prime example. The Jacksonville, Fla., bank boosted the rate on its 12-month CD by 32 basis points between late November and late February to 2%, one of the highest available, according to RateWatch. (EverBank has branches but gathers the bulk of its deposits online.)
Ally Bank increased its rate on that product by 43 basis points to 1.98%. Capital One 360 also offered a 1.98% rate on its raised 12-month CD as of the week of Feb. 19.
Some online banks, however, had not yet moved to increase CD rates. USAA’s 12-month CD carried a 0.71% rate as of March 12. State Farm Bank, which primarily operates online, offered 0.1% on the same term CD.
Meanwhile, a few brick-and-mortar banks have been aggressive in promoting CDs. The $1.8 billion-asset Union County Savings Bank in Elizabeth, N.J., which does not have a website, raised rates on its 12-month CD by 29 basis points to 1.81%.
Online banks have offered some of the highest rates on that product. The $34 billion-asset EverBank, a unit of the asset manager TIAA, is a prime example. The Jacksonville, Fla., bank boosted the rate on its 12-month CD by 32 basis points between late November and late February to 2%, one of the highest available, according to RateWatch. (EverBank has branches but gathers the bulk of its deposits online.)
Ally Bank increased its rate on that product by 43 basis points to 1.98%. Capital One 360 also offered a 1.98% rate on its raised 12-month CD as of the week of Feb. 19.
Some online banks, however, had not yet moved to increase CD rates. USAA’s 12-month CD carried a 0.71% rate as of March 12. State Farm Bank, which primarily operates online, offered 0.1% on the same term CD.
Meanwhile, a few brick-and-mortar banks have been aggressive in promoting CDs. The $1.8 billion-asset Union County Savings Bank in Elizabeth, N.J., which does not have a website, raised rates on its 12-month CD by 29 basis points to 1.81%.
Credit unions: Listening to their members
Credit unions have been particularly aggressive in hiking deposit rates. That’s partly because credit union members keep a keen eye on their rates, said Dana Vas Nunes, senior manager for deposit products at Alliant Credit Union in Chicago.
“We get reminded whenever we’re not competitive,” Vas Nunes said. “Our members become very vocal and we try to keep them happy.”
On plain-vanilla savings accounts, the $9.7 billion-asset Alliant increased its rate by 29 basis points between November and February to 1.44%, according to RateWatch. It raised 12-month CD rates by the same amount, to 1.73%.
The $1.7 billion-asset Connexus Credit Union in Wausau, Wis., boosted money market rates by 40 basis points to 0.75%. That was among the nation’s biggest increases for that product during this time period. Connexus also hiked 12-month CD rates by 100 basis points to 1.99%.
Plenty more credit unions have passed along higher rates to depositors, especially on 12-month CDs. Those include the $23 billion-asset Pentagon Federal Credit Union, which raised its rate 25 basis points to 1.85%; and the $2.1 billion-asset Atlanta Postal Credit Union, which raised its rate 49 basis points to 1.48%.
Then there is the $14 billion-asset SchoolsFirst Federal Credit Union in Santa Ana, Calif. SchoolsFirst offers one of the highest rates in America for a CD. Its 60-month CD, with a $100,000 minimum balance, carried a 2.52% rate as of March 12. That’s only 28 basis points short of the yield on the 10-year Treasury as of Wednesday.
“We get reminded whenever we’re not competitive,” Vas Nunes said. “Our members become very vocal and we try to keep them happy.”
On plain-vanilla savings accounts, the $9.7 billion-asset Alliant increased its rate by 29 basis points between November and February to 1.44%, according to RateWatch. It raised 12-month CD rates by the same amount, to 1.73%.
The $1.7 billion-asset Connexus Credit Union in Wausau, Wis., boosted money market rates by 40 basis points to 0.75%. That was among the nation’s biggest increases for that product during this time period. Connexus also hiked 12-month CD rates by 100 basis points to 1.99%.
Plenty more credit unions have passed along higher rates to depositors, especially on 12-month CDs. Those include the $23 billion-asset Pentagon Federal Credit Union, which raised its rate 25 basis points to 1.85%; and the $2.1 billion-asset Atlanta Postal Credit Union, which raised its rate 49 basis points to 1.48%.
Then there is the $14 billion-asset SchoolsFirst Federal Credit Union in Santa Ana, Calif. SchoolsFirst offers one of the highest rates in America for a CD. Its 60-month CD, with a $100,000 minimum balance, carried a 2.52% rate as of March 12. That’s only 28 basis points short of the yield on the 10-year Treasury as of Wednesday.
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Iowa: Battleground state
Iowa has become one of the nation’s most competitive markets for deposits, according to RateWatch.
Several banks and credits unions in the Hawkeye State have recently upped their rates on CDs, savings accounts and money market products.
The University of Iowa Community Credit Union in North Liberty increased rates across the board in February. The credit union offers an 18-month CD at 2.4%. A money market with a $250,000 minimum balance carries a 1.4% rate.
“I want to ensure our pricing is among the best pricing in the markets we serve,” said Jeff Disterhoft, the $4.7 billion-asset credit union’s CEO.
The $4.5 billion-asset Bankers Trust Co. in Des Moines also recently boosted rates on its money markets, and it raised the rate on its 12-month CD by 90 basis points to 1.45%.
Luana Savings Bank, a $984 million-asset thrift, has aggressively sought depositors online. It offershigh rates on CDs with a range of terms and minimum balances. On the benchmark 12-month CD, with a $10,000 minimum balance, Luana has raised the rate by 45 basis points since November to 1.8%.
Several banks and credits unions in the Hawkeye State have recently upped their rates on CDs, savings accounts and money market products.
The University of Iowa Community Credit Union in North Liberty increased rates across the board in February. The credit union offers an 18-month CD at 2.4%. A money market with a $250,000 minimum balance carries a 1.4% rate.
“I want to ensure our pricing is among the best pricing in the markets we serve,” said Jeff Disterhoft, the $4.7 billion-asset credit union’s CEO.
The $4.5 billion-asset Bankers Trust Co. in Des Moines also recently boosted rates on its money markets, and it raised the rate on its 12-month CD by 90 basis points to 1.45%.
Luana Savings Bank, a $984 million-asset thrift, has aggressively sought depositors online. It offers
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Perk for military families: Higher CD rates
Members of the military can sometimes get better rates than civilians.
Through the Defense Department’s Overseas Military Banking Program, which is operated by Bank of America, the rate on a 12-month CD was 1.45% as of March 1, according to RateWatch. That’s 140 basis points higher than what B of A was paying on its nonmilitary, 12-month CD as of the week of Feb. 19.
Pentagon Federal Credit Union has also boosted rates this winter. PenFed, which has a strong military membership but also serves nonmilitary households, raised rates on its 12-month CD by 25 basis points between November and February, according to RateWatch.
However, USAA, which largely serves members of the military and their families, has been a laggard on deposit rates. Its 12-month CD with a $10,000 minimum balance carried a 0.71% rate as of March 13. And the rate on USAA’s savings accounts with a $2,500 balance was 0.05%.
Through the Defense Department’s Overseas Military Banking Program, which is operated by Bank of America, the rate on a 12-month CD was 1.45% as of March 1, according to RateWatch. That’s 140 basis points higher than what B of A was paying on its nonmilitary, 12-month CD as of the week of Feb. 19.
Pentagon Federal Credit Union has also boosted rates this winter. PenFed, which has a strong military membership but also serves nonmilitary households, raised rates on its 12-month CD by 25 basis points between November and February, according to RateWatch.
However, USAA, which largely serves members of the military and their families, has been a laggard on deposit rates. Its 12-month CD with a $10,000 minimum balance carried a 0.71% rate as of March 13. And the rate on USAA’s savings accounts with a $2,500 balance was 0.05%.
David Paul Morris/Bloomberg
Big banks stand pat (for now)
As it turns out, USAA isn’t alone when it comes to lagging the market on raising deposit rates. Most large and regional banks have held back since the Fed’s December rate hike.
Between November and February, none of the nation's largest banks meaningfully raised rates on savings accounts, CDs and money markets.
JPMorgan Chase offered 0.01% on savings accounts with a $2,500 minimum balance as of the week of Feb. 19, according to RateWatch. Bank of America’s money markets, with a $25,000 minimum balance offered 0.03%. And the best rate a customer could get on a 12-month CD at Wells Fargo, with a $10,000 minimum balance, was 0.05%.
All of this could soon change. Large and regional banks have spent the past several months raising loan rates on everything from commercial real estate to business loans, according to Marty Mosby, an analyst at Vining Sparks. At the same time, these banks have barely budged on deposit rates.
That’s allowed these banks to create a wide spread between their funding costs and loans rates. With the Fed expected to approve a handful of rate hikes this year, large banks can now start passing those increases along to customers, Mosby said.
Wells Fargo and Bank of America arealready taking steps to raise rates in specific markets to counter attempts by smaller institutions to steal their customers, according to Informa Research Services.
Between November and February, none of the nation's largest banks meaningfully raised rates on savings accounts, CDs and money markets.
JPMorgan Chase offered 0.01% on savings accounts with a $2,500 minimum balance as of the week of Feb. 19, according to RateWatch. Bank of America’s money markets, with a $25,000 minimum balance offered 0.03%. And the best rate a customer could get on a 12-month CD at Wells Fargo, with a $10,000 minimum balance, was 0.05%.
All of this could soon change. Large and regional banks have spent the past several months raising loan rates on everything from commercial real estate to business loans, according to Marty Mosby, an analyst at Vining Sparks. At the same time, these banks have barely budged on deposit rates.
That’s allowed these banks to create a wide spread between their funding costs and loans rates. With the Fed expected to approve a handful of rate hikes this year, large banks can now start passing those increases along to customers, Mosby said.
Wells Fargo and Bank of America are
