Managing and Pricing Deposits Services
CHAPTER 12
MANAGING AND PRICING DEPOSIT SERVICES
Goal of This Chapter: This chapter has multiple goals. One of the most important is to learn about the different types of deposits financial institutions offer and, from the perspective of a manager, to discover which types of deposits are among the most profitable to offer their customers. We also want to explore how an institution’s cost of funding can be determined and examine the different methods open to institutions to price the deposits and deposit-related services they sell to the public.
Key Topics in This Chapter
• Types of Deposit Accounts Offered
• The Changing Mix of Deposits and Deposit Costs
• Pricing Deposit Services
• Conditional Deposit Pricing
• Rules for Deposit Insurance Coverage
• Disclosure of Deposit Terms
• Lifeline Banking
Chapter Outline
I. Introduction: The Importance of Deposits and the Challenge of Managing Deposits
II.Types of Deposits Offered by Banks and Other Depository Institutions
A. Transaction (Payments or Demand) Deposits
1. Noninterest-Bearing Transaction Deposits
2. Interest-Bearing Transaction Deposits
a. NOW Accounts
b. Money Market Deposit Accounts (MMDAs)
c. Super NOWs
B. Nontransaction (Savings or Thrift) Deposits
1. Passbook Savings Deposits
2. Statement Savings Deposits
3. Time Deposits C. Retirement Savings Deposits
1. Individual Retirement Accounts (IRAs)
2. Keogh Plans
3. Roth IRAs III. Interest Rates Offered on Different Types of Deposits
A. The Composition of Deposits
1. Trend toward Interest-Bearing and Nontransaction Deposits
2. The Importance of Core Deposits
3. Changes in the Relative Importance of Other Types of Deposits
B. The Ownership of Deposits C. Cost of Different Deposit Accounts
IV. Pricing Deposit-Related Services
V. Pricing Deposits at Cost Plus Profit Margin A. Estimating Deposit Service Costs B. An Example of Pooled Funds Costing
VI. Using Marginal Cost to Set Interest Rates on Deposits
MANAGING AND PRICING DEPOSIT SERVICES
Goal of This Chapter: This chapter has multiple goals. One of the most important is to learn about the different types of deposits financial institutions offer and, from the perspective of a manager, to discover which types of deposits are among the most profitable to offer their customers. We also want to explore how an institution’s cost of funding can be determined and examine the different methods open to institutions to price the deposits and deposit-related services they sell to the public.
Key Topics in This Chapter
• Types of Deposit Accounts Offered
• The Changing Mix of Deposits and Deposit Costs
• Pricing Deposit Services
• Conditional Deposit Pricing
• Rules for Deposit Insurance Coverage
• Disclosure of Deposit Terms
• Lifeline Banking
Chapter Outline
I. Introduction: The Importance of Deposits and the Challenge of Managing Deposits
II.Types of Deposits Offered by Banks and Other Depository Institutions
A. Transaction (Payments or Demand) Deposits
1. Noninterest-Bearing Transaction Deposits
2. Interest-Bearing Transaction Deposits
a. NOW Accounts
b. Money Market Deposit Accounts (MMDAs)
c. Super NOWs
B. Nontransaction (Savings or Thrift) Deposits
1. Passbook Savings Deposits
2. Statement Savings Deposits
3. Time Deposits C. Retirement Savings Deposits
1. Individual Retirement Accounts (IRAs)
2. Keogh Plans
3. Roth IRAs III. Interest Rates Offered on Different Types of Deposits
A. The Composition of Deposits
1. Trend toward Interest-Bearing and Nontransaction Deposits
2. The Importance of Core Deposits
3. Changes in the Relative Importance of Other Types of Deposits
B. The Ownership of Deposits C. Cost of Different Deposit Accounts
IV. Pricing Deposit-Related Services
V. Pricing Deposits at Cost Plus Profit Margin A. Estimating Deposit Service Costs B. An Example of Pooled Funds Costing
VI. Using Marginal Cost to Set Interest Rates on Deposits