Magazine article American Banker

Banks Unfazed by Runoff of Billions in CDs

Magazine article American Banker

Banks Unfazed by Runoff of Billions in CDs

Article excerpt

Banks Unfazed by Runoff of Billions in CDs

Instead of urging consumers to roll over nearly $150 billion in certificates of deposit maturing this month, bankers are quietly watching some of the funds slip into other accounts or out of their hands altogether.

Neither banks nor consumers seem pressured to renew the time deposits, which have lost their popularity with the decline in interest rates.

Alternatives Offered

"We are not naive about the interest rate cycle we're in," said Mitchell Ratliff, Chase Manhattan's group marketing manager for liabilities products. "Chase is now offering more alternative products to CDs. Our basic strategy is a relationship strategy. CDs are only one component."

Moreover, with interest rates the lowest in years, consumers are not eager to lock up their money for six months or longer.

At the same time, anemic loan demand has put an end to banks' voracious appetite for stable funds.

"Banks are not so concerned about losing deposits, especially expensive [term] deposits, because they don't have loans to put them in profitably," said Cynthia Glassman, research director at the consulting firm Furash & Co.

October often brings a surge in the amount of CDs maturing. Thousands of savers bought their first long-term CDs when the rates were deregulated in October 1983, and others bought them in October 1987 after the stock market crashed. The tax cycle also contributes to the surge: consumers use April tax refunds to buy CDs, and their six-month certificates mature in October.

Big Retirement Schedule

This month, banks are due to retire more than 10% of $1.1 trillion in outstanding CDs.

In the past, most CD holders have simply rolled over their money into new CDs. But plunging interest rates have made this year different. One-year CDs are yielding just 5.48%, compared with 7. …

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