LAKE FOREST, Ill.—Another new study indicates that if credit unions don’t start increasing deposit rates soon they could see money head out the door to higher-priced offers available online.
The new in-depth report from Moebs $ervices reveals that bank, thrift and credit union deposit rates are lagging rate deals that are just a click away.
“If CUs don’t begin raising their CD prices soon, they will see their deposits go to Walmart, Ally Bank, Discover . . .,” said Michael Moebs, economist and CEO at Moebs $ervices.
The latest Moebs report follows an earlier study by the company showing consumers are finally beginning to show interest in CDs again and that FIs need to raise rates. A separate CUToday.info report indicates that some CUs are making moves, although many have yet to move
Moebs said data from financial institution money market deposit accounts (MMDA) and six-month CD products—two key deposit types—show brick-and-mortar banks and credit unions are not raising their rates much.
The Federal Reserve’s efforts to increase price over the last two years on the six-month Treasury bill have failed to have their desired effect, emphasized Moebs.
“Since the Fed has increased the six-month T-bill rate starting in 2016 from a low of 0.10% to 2.03% today, rates for MMDAs or savings are up only three basis points and six-month CDs have gone up eight BPs,” said Moebs. “The Fed is betting on price to push depository rates higher and after two years depository rates have barely budged.”
Fed Stimulates Rates
The Moebs Rate Study shows that during the times prior to the mortgage meltdown in 2008, MMDAs and six-month CDs where 30% to 50% of six-month T-bill rates. The analysis uses six-month T-bills since this maturity offers the most volume and liquidity of all Treasury bills, Moebs explained.
“For seven years, from 2009-2015, MMDA and six-month CD rates exceeded or equaled U.S. Treasury’s six-month T-bill rates,” said Moebs. “Now the Fed is trying to stimulate deposit rates by substantially increasing short-term Treasury bill rates. Starting in 2016 depositories’ rates for MMDAs and six-month CDs are only 5% to 10% of what the Fed offers on six-month T-bills.”
Michael Moebs
Moebs asserted that without more deposit growth, financial institutions see no need to increases rates. Deposit growth since 2008 is 3.4% a year, per the Moebs Rate Study. The norm for 50 years is 7.2%, Moebs said.
“Deposit rates will rise when the Fed balances their rates-only approach with deposit growth,” said Moebs.
All-Time Highs
Currently, checking account balances at banks, thrifts and credit unions are at an all-time high of $2.1 trillion—up $1.5 trillion since 2008, the study shows. MMDAs and savings are at an all-time high of $9.2 trillion—up $5.1 trillion since 2008. Retail CDs are down $1.1 trillion and are now at $429 billion.
“Overall the consumer has a net positive balance of $11.7 trillion, or $5.4 trillion more than when the Great Recession started in 2008,” noted Moebs. “The consumer went short 10 years ago—took a low or no interest position to be able to move money quickly, and is still there—and they will move their money away from banks and credit unions if they don’t raise their rates.”