Time deposit owners always want the same thing – more yield and short commitment.  They search for yield and maturity combinations from the options they know about and then open up time accounts in their financial institution of choice.  Historically, they then close their eyes and wait to maturity.   How will recent and future Federal Reserve actions impact this situation?

The industry has clearly promoted that there is a “Substantial Penalty for Early Withdrawal”.  Nobody wants to pay penalties and people presume that financial institutions would deliberately design their penalties to be substantial.   During decades of falling and low interest rates it never made sense to pay penalties to try to improve time deposit investments. 

Curious depositors today will find that in many cases penalties for early withdrawal are not “substantial”.  In fact today with rates rising those who open their eyes to the possibility of refinancing time deposits often find substantial windfalls from breaking the current low-rate contracts and reinvesting in the same simple, safe, and predictable insured deposit investment product.  With absolutely no risk to the depositor they can get what they want – more yield without a change in their commitment.

The first reaction of conservative financial institution executives is often to ignore this.  They have planned to keep their own low-cost deposits to maturity.  ALCO models have presumed that these accounts will sustain low-cost funding for a period of time.   Now consider bringing in the competitors’ low-cost deposits immediately without paying premium rates.  Progressive financial institutions have opened their eyes to broadcasting the opportunity to dislocate time deposits immediately and win them over from competitors. 

This opportunity will not stay a secret for long.  The refinance will bless senior citizens who have suffered greatly during the long period of low interest rates.  Helping senior citizens is the type of good news story that our society embraces.  Financial institutions that down-play this opportunity will appear oppressive.  The best financial institutions are helping depositors get more value and in the process benefit themselves.  After all isn’t that ultimately the mission of the financial services industry?

DepositsAccounts.com has a free calculator on their website to help depositors do the math.  You can find it at https://www.depositaccounts.com/tools/break-cd-calculator.aspx.  It is only a matter of time before financial media and the general media will pick up this story.  What will financial institutions do when depositors come in and report that they saw a story about this on the nightly news?

Now, progressive financial institutions are creating customized maturities for newly issued certificates so that their offers fit nicely with the math of refinancing deposits.  This process exposes the depositor to no change in commitment, but clearly defines the Net Benefit at Maturity from Transferring Now into a new contract.  By transferring immediately many depositors can achieve significantly greater value at maturity.   Here is a sample analysis produced by CoreCD® pricing and sales platform specifically designed to address this…

Ellen Mepham
Managing Director, Deposit Products
and Portfolio Management
MUFG Union Bank

Dennis Nykolyn
Senior Vice President, National Deposit Pricing

Ravi Mallela
Senior Vice President, Head of Finance
First Republic Bank

Daniel Dent
Senior Vice President, Consumer Deposits and Emerging Payments Solutions Manager
First Tennessee Bank

Key Speakers Include:

Topics  Include:

Create innovative and accessible products to incentivize consumer deposits

Ensure profitability is maintained whilst complying with regulatory requirements

Enhance distribution channels to improve customer experience

Maximize effectiveness of deposit strategy in a changing interest rate environment

Apply the most effective pricing strategies to remain competitive in the deposit market

For More Information Contact:
John Hummel

Digital Marketing Coordinator
marcus evans Group
(312) 894-6327

Attending this GFMI forum will allow financial institutions to understand how to optimize their deposit management strategies in a changing interest rate environment. This will include practical case studies of competitive pricing strategies and innovation in products and delivery channels. Attendees will recognize how to optimize deposit value within the current
regulatory restrictions, whilst considering the changing role of deposits in an environment of increasing interest rates. They will explore practical approaches to strengthen customer relationships through overall positive user experiences.

About the Conference

Neil Stanley is Founder and CEO of The CorePoint, A financial technology firm providing CoreCD® deposit sales and pricing platform. He is also President of Community Banking at TS Banking Group with operations in Iowa, North Dakota, and Illinois.

About the Speaker:

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All rights reserved.

In this sample, the owner of a certificate currently worth $101,000 principal and interest discovers they can trade contracts and gain an additional $2,452 at maturity without changing maturity terms.  The financial institutions that help people discover these risk-free opportunities find that instead of having the potential to win over only the small portion of deposits that are currently maturing,all certificates are now “in play”.  Astute executives find there is much more to gain than to lose when they are proactive.  Running the numbers and helping depositors is exciting and rewarding for everyone involved.   Financial institutions can do good for senior citizens while doing what is right for the industry. 

Marketers get ready to promote.  Being recognized at the outset in your market footprint as distributing this good news story is an opportunity to break the myth that all financial institutions are the same.  As great marketers know, even good news needs an active marketing campaign to focus the message and maximize the opportunities.  Thanks to rising interest rates along with proactive engagement, eyes can be opened and energy can come back to new business development in deposits.

For additional reference 

To learn more about portfolio impacts reference this Financial Manager Society White Paper 

Opening Eyes as Rates Rise

Neil Stanley

Founder and CEO - The CorePoint

Speaker at:
Banking Growth Forum

May 17-19, 2017

Hotel Chicago | Chicago, IL

Platinum Sponsor:  Nomis

Nomis is a fast-growth software company that combines cutting-edge Silicon Valley approaches to big data, advanced modeling, and deep analytics to help large and medium-sized retail banks better understand their customers.