When autocomplete results are available use up and down arrows to review and enter to select.
Aug. 01, 2024
H.D. Barkett, Senior Managing Director, Treasury Desk, IntraFi
As the Federal Reserve works to strike a delicate balance to tame inflation without stagnating growth, central bankers have repeatedly remarked on the murky future for rates. Additionally, per a Q1 2024 survey from IntraFi, 67% of bankers reported worsening deposit competition over the past 12 months, with nearly half expecting that trend to continue for the next year.
With elevated customer demand for safe cash investments, increased competition for deposits, and potential rate cuts on the horizon, banks are strategizing carefully to maintain competitiveness while minimizing risk exposure when it comes to savings rates.
Committing to high-interest deposit accounts now could result in significant financial strain if market rates decline – adversely impacting a bank’s profitability and liquidity management.
One solution to this problem: A deposit placement service that offers an option to sell deposits to participating network members. Selling deposits via a service can help banks to manage liquidity effectively, satisfy customer demand for higher rates, and safeguard their financial stability.
What Is a Deposit Placement Service?
A deposit placement service enables participating financial institutions to place their customers’ funds in deposit accounts at other participating depository institutions in increments under $250,000 to provide access to an amount of aggregate FDIC insurance greater than the per depository institution limit. The depositor maintains access to its funds through the same bank it already uses. A bank using a deposit placement service may be able to choose to exchange, buy, or sell deposits to manage its liquidity – without affecting the customer relationship.
How Selling through a Deposit Placement Service Works Some deposit placement services offer the option for financial institutions to sell funds to other network member banks in exchange for fee income. Benefits include:
Practical Applications
Consider a bank that has attracted a significant number of depositors with 5%+ rates for longer term CDs. By utilizing the option to sell deposits to other network members, the bank can continue to offer these attractive rates to customers. The bank sets the interest rate, and customers benefit from access to FDIC insurance beyond the standard limit and consistent service from the bank they trust. Meanwhile, the bank sells these deposits off its balance sheet, mitigating the risk of being locked into high rates if the market rates decline.
A Strategic Approach to Funding
By using a deposit placement service to sell deposits, a bank can adopt a barbell approach to funding – fine-tuning the distribution of risk across its liabilities. For example, an institution can keep on balance sheet the amount of short-term network deposits, which reprice efficiently and can be adjusted as rates change – while selling off higher rate, longer-term deposits.
With rate changes potentially on the horizon, the ability to adjust funding strategies swiftly and efficiently becomes a significant competitive advantage, helping banks to meet customer demands and offering another tool banks can use to maintain financial stability in any rate environment.
About IntraFi
IntraFi® is a trusted partner chosen by more than 3,000 financial institutions nationwide. IntraFi’s network—the largest of its kind—brings scale, giving each participant access to tens of billions of dollars in funding, the highest per-depositor and per-bank capacity, and the peace of mind of being able to make large-dollar placements.