Transaction Deposit

1
Transaction Deposit

• An Account Used Primarily to Make Payments for
  Purchases of Goods and Services

2
Types of Transaction Deposits

• Noninterest-Bearing Demand Deposits
• Interest-Bearing Demand Deposits
• Negotiable Orders of Withdrawal (NOW)
• Money Market Deposit Account (MMDA)
• Super NOW Account

3
Thrift or Savings Deposit

• An Account Whose Primary Purpose is to Encourage
  the Bank Customer to Save Rather than Make
  Payments

4
Types of Savings or Thrift Deposits

• Passbook Savings Account
• Statement Savings Deposit
• Time Deposit (CD)
• Individual Retirement Account (IRA)
• Keogh Deposit
• Roth IRA

5
Popular Types of CDs

• Bump-Up CD Allows a Depositor to Switch to a
  Higher Interest Rate if Market Rates Rise
• Step-Up CD Permits Periodic Upward Adjustments
  in the Promised Interest Rate
• Liquid CD Permits the Depositor to Withdraw
  Some or All of Their Funds Without a Withdrawal
  Penalty

6
Interest Rates on Deposits Depend On

• The Maturity of the Deposit
• The Size of the Offering Institution
• The Risk of the Offering Institution
• Marketing Philosophy and Goals of the Offering
  Institution

7
Core Deposits

• A Stable Base of Funds that is Not Highly
  Sensitive to Movements in Market Interest Rates
  and Which Tend to Remain with the Bank

8
Cost Plus Profit Deposit Pricing
9
Historical Average Cost Approach

• Determines the Banks Const of Funds by Looking
  at the Past. It Looks at What Funds the Bank Has
  Raised to Date and What those Funds Have Cost

10
Pooled Funds Approach

• Determine the Banks Cost of Funds by Looking at
  the Future. What minimum Rate of Return is the
  Bank Going to Have to Earn on Any Future Loans
  and Securities to Cover the Cost of all New Funds
  Raised?

11
Using Marginal Cost to Set Interest Rates on
Deposits

• Many Financial Analysts Would Argue That the
  Added Cost (Not Weighted Average Cost) of
  Bringing New Funds into the Bank Should Be Used
  to Price Deposits.

12
Market Penetration Deposit Pricing

• The Method of Selling Deposits That Usually Sets
  Low Prices and Fees Initially to Encourage
  Customers to Open an Account and Then Raises
  Prices and Fees Later On.

13
Conditional Pricing

• Schedule of Fees were Low If Customer Stayed
  Above Some Minimum Balance - Fees Conditional On
  How the Account Was Used
• Conditional Pricing Based On One or More Of the
  Following Factors
• The Number of Transactions Passing Through the
  Account
• The Average Balance Held in the Account During
  the Period
• The Maturity of the Deposit

14
Upscale Target Pricing

• Bank Aggressively Goes After High-Balance,
  Low-Activity Accounts. Bank Uses Carefully
  Designed Advertising to Target Established
  Business Owners and Managers and Other High
  Income Households.

15
Relationship Pricing

• The Bank Prices Deposits According to the Number
  of Services Purchased or Used. The Customer May
  Be Granted Lower Fees or Have Some Fees Waived If
  Two or More Services are Used.