High commercial balances may be where the money is, but it’s not where banks should focus for low cost deposits, especially as rates fall. According to the Curinos Commercial Analyzer, fully 40% of balances greater than $1 million were earning more than 400 bp by year end. In stark contrast were balances below $1 million. Only 20% of them were receiving more than 400 bp in interest at year end, and their peak rate for the year was 255 bp. That’s over 140 bps lower than the 396 bp peak that balances over $1 million reached at the top of the rate cycle. In addition, the volume of balances earning less than 10 bp was half that of balances above $1 million – only 10% versus 20% (see chart).
Small and medium-sized businesses are the last frontier of modestly priced business deposits, so it’s no wonder that more and more banks are increasingly setting their sights on them. Banks are reshaping their segmentation strategies, standing up dedicated relationship teams and developing new treasury management product packages to attract more deposits and win in this space. That’s because these businesses are likely to keep much more of their balances in non-interest-bearing products to fund their operating accounts. And they’re likely to value the entire relationship they have with their primary bank rather than focusing only on negotiating for the highest rates.
Thinking about improving your funding efficiency? When it comes to commercial deposits, try thinking small.
Low-balance accounts can be especially
valuable in a falling rate environment.
All Interest-Bearing Products
Source(s): Curinos Commercial Analyzer
