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#2206281 - 02/15/19 12:59 AM
Increase Rate on Time Deposit mid-cotract
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Diamond Poster
Joined: Jul 2007
Posts: 1,016
Pac NW
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With the rising rate environment, we have some customers that are shopping funds in a time deposit. We wish to retain these customers.
Can you think of any disclosure/regulator issues of simply increasing the interest rate for these customers mid-way through the contracted time period? No other changes would take place.
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#2206287 - 02/15/19 12:13 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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10K Club
Joined: Jul 2001
Posts: 83,364
Galveston, TX
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No problems other than that is the nature of buying a CD. You planning to do this for all or just some customers? How do you determine who to do it for?
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2206304 - 02/15/19 03:01 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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Diamond Poster
Joined: Jul 2007
Posts: 1,016
Pac NW
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No kidding.
This particular customer has a large loan and deposit relationship with multiple entities and individuals. The current CDs are no penalty products from a couple of years ago, so he could easily pull it. The rate we're offering is competitive, but not what he could get at some of his other institutions.
I'm not a big fan of exception pricing, but sometimes we do it.
Thanks for the response.
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#2206306 - 02/15/19 03:10 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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10K Club
Joined: Jul 2001
Posts: 83,364
Galveston, TX
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If these are no penalty products, why would they not just pull them and open new CD's with you? Why modify the current CDs?
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2206371 - 02/15/19 06:23 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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Diamond Poster
Joined: Jul 2007
Posts: 1,016
Pac NW
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Getting all of the signers to sign the documents is "a hassle".
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#2206374 - 02/15/19 06:30 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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10K Club
Joined: Jul 2001
Posts: 83,364
Galveston, TX
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How technically, how can you legally modify an existing contract without the agreement of all parties? I guess if it is to the benefit of the customer then it might not be that much of a big deal, but still, the bank would be under no legal obligation to actually pay the higher rate.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2206402 - 02/15/19 08:14 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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10K Club
Joined: Oct 2000
Posts: 27,750
On the Net
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So "give me a higher rate, or we will go through the hassle..." I don't like customers putting a gun to my head. When rates drop, the bank doesn't reduce the consumers rate. If this isn't a really valuable relationship, and the bank doesn't want to be up'g the rate on this deposit relationship every time rates in general go up, I'd be hard pressed to agree. (But hey, I'm in compliance, not sales.)
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AndyZ CRCM My opinions are not necessarily my employers. R+R-R=R+R Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell
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#2206444 - 02/18/19 06:15 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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Platinum Poster
Joined: Aug 2015
Posts: 756
Land Lacking in Lakes, IL
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Kinda depends on bank size, too. At my prior bank, we were so small that it was tough on us to lose deposits, especially when the types of customers that tended to do this sort of thing held a lot of money with us. It was a pain though because we obviously couldn't increase their loan rates or drop the deposit rate when those changed in OUR favor. Then again, I didn't get to make a ton of decisions on that sort of thing... I was in compliance, too
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#2206454 - 02/19/19 03:44 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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Platinum Poster
Joined: Nov 2013
Posts: 549
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I tend to agree with Andy. The argument is circular. They don't want to go through the hassle of signing new deposit documents, but if you don't increase the rate they are going to go through the hassle of signing new deposit documents....
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I reject your reality and replace it with my own.
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#2206483 - 02/19/19 07:36 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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10K Club
Joined: Oct 2000
Posts: 40,086
Cape Cod
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And of such squabbles over the hassle of signing new docs the variable rate product was born.
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John S. Burnett BankersOnline.com Fighting for Compliance since 1976 Bankers' Threads User #8
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#2206485 - 02/19/19 07:38 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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10K Club
Joined: Oct 2000
Posts: 40,086
Cape Cod
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Have those customers or others like them -- price sensitive -- started asking yet about interest on their commercial checking accounts?
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John S. Burnett BankersOnline.com Fighting for Compliance since 1976 Bankers' Threads User #8
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#2206716 - 02/21/19 07:18 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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Diamond Poster
Joined: Jul 2007
Posts: 1,016
Pac NW
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Responding to some of the comments:
rlcarey - No, we can't unilaterally change the contract, but in a situation in which we're increasing the rate to the customer benefit I find that there's little risk.
Andy - I'm also mostly in compliance (or that's part of my job anyway) and while I also don't like just increasing rates because a customer will leave, we do it sometimes. Depends on the overall relationship, if they've taken this action before, what the future relationship might look like, etc. But in this case, going through the hassle would be moving the entire relationship to another institution. And it is a valuable (meaning profitable) customer. If they're going to go through the hassle, they're going to get better rates for it... which would include moving money from CODs to MMAs paying what they're getting on the CDs. So they get liquid funds at their current price.
John - We just rolled out a DDA product similar to CDARS, except for demand accounts. We're paying interest on funds that are in the program but out of our bank (generally over $250M), but not the funds in our bank. So far, we've seen good reception to the product.
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#2206929 - 02/22/19 09:59 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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10K Club
Joined: Oct 2000
Posts: 40,086
Cape Cod
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Wow! Your bank is paying interest on funds held by another bank through CDARS? Bizarre!
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John S. Burnett BankersOnline.com Fighting for Compliance since 1976 Bankers' Threads User #8
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#2208495 - 03/12/19 05:00 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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Diamond Poster
Joined: Jul 2007
Posts: 1,016
Pac NW
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John, not exactly. That sentence didn't really make sense how I wrote it.
Funds are deposited in our bank which we may or may not pay interest on, then funds in excess of a peg balance sweep into a program out of our bank which distributes the funds to various other banks in the program to provide FDIC insurance. Those banks pay a program rate on the funds. We take a cut of that interest and the remainder is paid to the customers.
So the program funds pay 2.25%. We have agreed to pay the customer 1.50% on the funds. We get 0.75% of the interest paid on the funds in the program and the customer gets the rest.
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#2208550 - 03/12/19 08:37 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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10K Club
Joined: Oct 2000
Posts: 40,086
Cape Cod
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Ah! No longer bizarre. You're acting as a deposit broker for a fee.
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John S. Burnett BankersOnline.com Fighting for Compliance since 1976 Bankers' Threads User #8
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#2208677 - 03/13/19 06:52 PM
Re: Increase Rate on Time Deposit mid-cotract
fmissle
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Diamond Poster
Joined: Jul 2007
Posts: 1,016
Pac NW
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That's a very succinct way to put it.
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