We are working on a higher yield deposit offering for our bank and are faced with the same questions. The financial analysis is fairly straightforward. What is the cost of the deposit program versus the next best alternative. If you need the deposits, ideally the cost should be less than that of purely wholesale sources such as FHLB advances, Internet listing service deposits, CDARS one-way buys, brokered funds, etc.
Non-financial criteria have to be weighed as well, and should not be discounted. The offer should ideally delight existing customers and attract new ones. A good yield is a big part of it, but the value added structure of the offer (high-yield savings plus a great CD rate) should be designed to both attract and hold customers. It should be a chance to solidify or establish new relationships. It is always possible to attract deposits by advertising a high rate, but this often just results in attracting fickle rate-shoppers, who will move again if you don't always offer the highest rate.
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Dwayne Kolly
Chief Financial Officer
Business Bank of Texas, N.A.
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Original Message:
Sent: 08-20-2018 08:51
From: Neil Stanley
Subject: Measuring the Value of Retail Deposits
This month, one bank I am familiar with reported a new retail deposit client that opened up a $300k 24-month CD @ 2.09% APY fixed and a $180K Companion Deposit Account @ 1.80% APY variable. The CD featured a "right-sized" penalty while other banks in the same community promoted comparable term CD offerings of 3.00%. I am curious how bank leaders today measure the value of these results? With overnight FHLB advance rates at 2.18% and 24-month at 2.83% how would you assess the profitability/value of this new $480,000 of retail funding to this bank? We talk in our industry a lot about the value of relationships, how would you estimate the value of this one?
Even if you don't write back to this posting, I suggest you should ask your finance team to address this question internally. If we as leaders cannot recognize and measure success and failure, there is little hope of guiding our team toward success in this essential responsibility to fund our balance sheets.
------------------------------
Neil Stanley
President of Community Banking
TS Banking Group
Treynor, Iowa
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Non-financial criteria have to be weighed as well, and should not be discounted. The offer should ideally delight existing customers and attract new ones. A good yield is a big part of it, but the value added structure of the offer (high-yield savings plus a great CD rate) should be designed to both attract and hold customers. It should be a chance to solidify or establish new relationships. It is always possible to attract deposits by advertising a high rate, but this often just results in attracting fickle rate-shoppers, who will move again if you don't always offer the highest rate.
------------------------------
Dwayne Kolly
Chief Financial Officer
Business Bank of Texas, N.A.
------------------------------
-------------------------------------------
Original Message:
Sent: 08-20-2018 08:51
From: Neil Stanley
Subject: Measuring the Value of Retail Deposits
This month, one bank I am familiar with reported a new retail deposit client that opened up a $300k 24-month CD @ 2.09% APY fixed and a $180K Companion Deposit Account @ 1.80% APY variable. The CD featured a "right-sized" penalty while other banks in the same community promoted comparable term CD offerings of 3.00%. I am curious how bank leaders today measure the value of these results? With overnight FHLB advance rates at 2.18% and 24-month at 2.83% how would you assess the profitability/value of this new $480,000 of retail funding to this bank? We talk in our industry a lot about the value of relationships, how would you estimate the value of this one?
Even if you don't write back to this posting, I suggest you should ask your finance team to address this question internally. If we as leaders cannot recognize and measure success and failure, there is little hope of guiding our team toward success in this essential responsibility to fund our balance sheets.
------------------------------
Neil Stanley
President of Community Banking
TS Banking Group
Treynor, Iowa
------------------------------
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