Last week we wrote about how some banks are already starting to raise rates and how banks are adding deposits due to lower energy prices creating more disposable income. In the past, we have also showed how today depositor, given the rate environment, is more fee / attribute sensitive, than rate sensitive. Because of the confluence of trends, community banks must make sure to get their deposit pricing right in order to optimize their positioning. To that end, this week we highlight some other changes that have taken place in order to help your bank stay ahead of some deposit trends for the coming year.
Community Banks Have Combined Balance Levels Correct: It is rare that community banks outwit larger national banks when it comes to deposit pricing. However, when it comes to managing combined account balance levels, community banks are closer to optimized levels (by our calculations) than larger national banks. Some of this has to do with the sheer size of larger banks that have a wider dispersion of account balances and so set their level closer to the lowest common denominator. Community banks, with a more geographically and demographically targeted practice, tend to have a customer that skews to larger and less volatile balances. As a result, community banks can usually set their combined balance levels much higher.
Third-party Free ATM Transactions: Direct, internet banks, have been increasing the number of free third-party (foreign) allowed without charge and banks have been unchanged. Next to monthly fees, for deposit accounts with large balances, this is the most elastic fee set for community banks.
Articulate A Philosophy On Overdraft Fees: While credit unions have remained consistent and stable when it comes to overdraft (OD) fees, banks are all over the board. Some banks have increased fees, while some have decreased fees. Some banks have priced OD fees in order to make money while others have priced to limit the impact on their customers. As a general rule, the smaller your community bank the less you are likely to charge for overdraft. As of the start of January, the average large bank fee was $33.07 while smaller community banks were about $31.00. This is the opposite for credit unions as the smaller you are, the MORE you are likely to charge. Large credit unions averaged OD fees equal to an average of $21.43 to start January, while smaller credits were at an average of $29.15.
Minimum Balance To Open An Account: Banks and credit unions of all sizes have been dropping their minimum balances that are required to open an account. This represents a more passive-aggressive way of competing for deposits but is better than fee waiving.
Outbound Domestic Wires: Banks and credit unions have been raising these across the board in an effort to increase non-interest income. If you raise monthly account fees, customers complain, you raise the fees of outbound wires and no one notices – plus those that do don’t complain too much as they are receiving money. Customers are much more sensitive to inbound wire fees than outbound.
Submitted by Chris Nichols on January 25, 2016