Post by Neil Stanley, Founder and CEO of CorePoint
CoreCD® clients are benefiting from lower interest rates by aggressively dropping CD interest rates while buffering against withdrawals with Limited Edition Savings.
In response to the Fed’s surprise 50 basis-point rate cut – and huge moves in the bond market making wholesale funding dramatically less expensive – financial institutions are faced with a challenge of lowering deposit rates while competitors are hesitating to respond to the lower rate environment.
Not wanting to lose deposits given current loan demand and earnings, bankers are unsure what to do. Do we lower rates and risk the wrath of depositors? Loan customers are demanding lower rates – there is no doubt about this. So, do we hesitate too or boldly drop rates?
Not a Mutually Exclusive Choice – Do Both
Financial institutions using Limited Edition Savings have a clear answer: we should do both. Aggressively lower rates and hold rates steady simultaneously; lower standard CD rates alongside US Treasuries; maintain customized CDs to be competitive with wholesale funding; lag the rate reduction on Limited Edition Savings.
The impact to your income statement is the difference in interest rates for the amount in the account for the length of time you keep those rates above Fed Funds. That time is your choice. However, after a few weeks, things will settle out and depositors will be much more likely to be inactive than they are currently with current dynamics.
Give competitors time to realize that paying high fixed rates on CDs is a bad idea while you hold onto your retail depositors with the Limited Edition Savings offer. Limited Edition Savings seems high compared to Fed Funds and the benefit to your balance sheet will be much greater than the burden to your income statement.
One long time CoreCD® client said, “While I have always valued the CoreCD® system, this situation demonstrates even more value than I had previously observed. What a difference between our old way of throwing out CD rates and hoping for the best without having several tools to attract and retain long-term savings.”
Don’t have Limited Edition Savings now? The good news is that you can be up and running promptly. The opportunity is available now to set up a simple savings account with a unique but technically simple twist. You can put it in the hands of your front line in a few weeks.