New Analysis Using MRI’s TrendSpotter Report Shows that Reducing Fees Has Little or No Impact on Deposit Growth.
San Anselmo, CA, USA — According to a recent analysis published by CenterState Bank, banks are reducing fees on deposit accounts despite the fact that fees seem to have little or no impact on the current increase in deposit balances. The analysis was developed using TrendSpotter, a new research tool that tracks accumulated fee trends for banks and credit unions nationwide produced by Market Rates Insight, Inc., the leader in financial services pricing intelligence for deposits, personal loans, mortgages, and fees.
According to the TrendSpotter analysis, service charges have been declining for banks of every size over the last quarter – deposit fees averaged $8.42 per month in December and declined to $7.92 the end of first quarter. At the same time, balances required to open accounts have dropped by 15 percent since December, and the average balance to waive fees has dropped 6.6 percent. The decline in deposit fees seems counterintuitive in a market climate where deposit balances are increasing as a result of behavioral economics rather than fee elasticity.
“We have looked at this all different ways and find this borderline irrational. Our only conclusion is that banks are not looking at the data,” wrote Chris Nichols, Chief Technology Officer of CenterState Bank and author of the analysis. “As long as you are not drastic, you can raise fees, lower fees or leave fees the same and you are still going to get more deposits. If you are not, it is a marketing/value problem, not a fee problem.”
As Nichols notes, that fee elasticity is negative in most markets, and even banks that have not lowered fees on deposit products are still increasing deposit balances. Banks that did not raise deposit fees for the quarter saw an increase of 2.3 percent, while banks that did raise fees increased deposits 2.1 percent, indicating that consumers are clearly not fee sensitive.
Nichols’ conclusion is that this is the perfect market climate for banks and credit unions to consider raising fees without risk. Banks that are lowering fees in order to attract new customers and increase deposit balances, and are ignoring the market data and abandoning possible revenue at a time when banks and credit unions are facing near record-low net interest margins.
TrendSpotter is a unique tool that gives bank and credit union executives an understanding of accumulated fee trends in the marketplace. Data is extracted from Market Rates Insight’s FeeBuilder, the first database of retail deposit fees that tracks overdraft, non-sufficient funds, monthly service charges, ATM fees, wire transfer, on checking, money market, savings, certificate of deposit, and more. TrendSpotter extracts trends from the FeeBuilder database and provides a picture of fee pricing and penalties for banking products nationwide. User can overlay their own fee pricing to create a trend line that shows how the competition affects revenue, attrition, and volume for their own fee-based products.
TrendSpotter is issued quarterly on an annual subscription basis. For more information, visit http://www.marketratesinsight.com/news/MRI_TrendSpotter.aspx.
About Market Rates Insight
For over 30 years, Market Rates Insight has helped banking executives make better informed pricing decisions. The company serves banks and credit unions nationally with competitive information on deposits, consumer loans, mortgages, and fees. Market Rates Insight provides the most granular historical and refresh pricing data in the industry, helping financial decision makers plan and prepare for likely changes in rates and products. The company’s cloud-based system provides timely and precise competitive data supported by usable graphs and charts.
Market Rates Insight is located in San Anselmo, California. For more information, see http://www.marketratesinsight.com.
Market Rates Insight