NEW YORK–The nation’s online banks are starting to lead the way and pay higher rates on deposits.
As CUToday.info reported earlier here, one analyst has been urging credit unions to act now to defend their deposits–especially certificates–or be prepared to watch funds exit in search of higher returns.
Now, led by online banks, rates approaching 2% are now being offered in response to moves by the Fed to push rates north.
“What is important, though, is that every time the Fed raises rates, a bigger portion of that increase goes to consumers,” noted the Wall Street Journal in an analysis. “In the second quarter, the so-called deposit beta, or the portion of a rate increase that is translated into deposit costs, jumped to 44% from 28% in the first quarter, according to Keefe, Bruyette & Woods.”
Christopher McGratty, an analyst with KBW, called the third quarter of this year a “catch-up quarter” for bank funding costs.
“One important reason deposit rates have stayed low is that after a decade of zero rates, savers now view bank accounts as ways to manage money and payments, not as a source of income,” the Journal analysis stated. “This effectively has made banks almost like technology companies, competing to offer depositors convenient websites, apps, and payment solutions.”
Among the online banks that are offering higher rates now are Marcus, the new consumer arm of Goldman Sachs, and credit card lender Synchrony Financial, both of which are now paying a 1.83% annual percentage rate on liquid savings accounts.
Overall deposit costs for online banks reached 1.29% in the second quarter of 2018, up from 1.11% in the first quarter, according to estimates by CreditSuisse, the Journal reported. By comparison, deposit costs for all banks nationwide were 0.64%, up from 0.53% the prior quarter.
The CreditSuisse data further show the online banks’ market share has risen to around 6% of total interest-bearing deposits, from 4% in 2015.