Raddon Research Insights. Deposits Insights: Still Waiting for Rising Rates

Transcription

1 Deposits Insights: Still Waiting for Rising Rates

2 Contents 2 Executive Summary 3 Changes in Consumers Financial Product Preferences 4 Deposit Accounts 10 Investments 35 Retirement Investments 43 Appendix A 48 2

3 Executive Summary Deposit rates are creeping upward 25 basis points at a time. With the federal funds rate at a target of 1.00 percent to 1.25 percent, we might expect the consumer to be hawkeyeing rates, looking for another 25 basis points, but we find the opposite: 8 percent of consumers are actively watching rates, which is no different from 2007, when the federal funds rate was If you lost the top 8 percent of your deposit balances, that would be catastrophic for an institution balance sheet, so it s important to understand what your current and potential clients are looking for when it comes to savings and investments. According to a survey by Raddon Research Insights, three out of 10 consumers with an average of $43,000 will move their funds for an average of 152 basis points. Those with more than $100,000 require 149 basis points to move. Consumers with existing funds at their deposit institution will move funds internally for an average of 82 basis points, but for them to move to a new institution requires 96 basis points. Investments being offered at the financial institution are trending downward slightly: 29 percent in 2017 compared to 34 percent in Consumers using their primary financial institution (PFI) for investment purchases remains steady at 8 percent. Three out of 10 consumers have developed their own financial plan, while two out of 10 relied on someone else. Robo-advisors, still a new development, are gaining some interest among consumers with more than $100,000 in investments. Those who are retired or planning to retire in the next several years are another segment focused on saving and investment products. Four out of 10 survey respondents are currently retired, with their top three sources of income being Social Security, retirement/ pension plans, and personal savings. Fifteen percent of those planning to retire in the next five years are already done saving for retirement, and four out of 10 of those still preparing for retirement are setting funds aside regularly. 3

4 2017 Deposit Insights: Evolving Consumer Deposit, Investment and Retirement Product Behavior Beyond the impact of new technologies on consumer behavior, economic and market conditions have changed consumer attitudes toward saving and investing, prompting financial institutions to adapt their offerings as well. Raddon Research Insights explores consumer savings and investment behavior to help financial institutions pinpoint current sales and revenue opportunities. Based on 1,212 online consumer surveys gathered in May 2017, this paper answers questions about consumer attitudes and preferences in three critical product areas: Deposits How has a prolonged low interest rate environment changed the consumer s choice of deposit products, and how should financial institutions begin preparing for the anticipated rise in interest rates? Changes in Consumers Financial Product Preferences Raddon Research Insights finds both slight and significant changes in insured deposit, investment and retirement product usage over the past 10 years. Checking and savings continue to be the most popular insured deposit products today, though the use of checking is showing a small decline. This can be attributed to the introduction of alternative checking accounts, offering a change from traditional checking with prepaid accounts or spending accounts that are more digital in nature and do not allow overdrafts. Investments With spread income declining, how should financial institutions develop investment products to groom noninterest income? Retirement Planning A majority of consumers are not financially prepared for retirement. How can financial institutions reverse this trend? Publication Date: December

5 Declining CD Usage The greatest change in insured deposit product usage in the past decade has been the decline of the term deposit, particularly the certificate. This decline is no doubt a result of the low interest rate environment. For roughly the first three quarters of 2007 the federal funds rate was 5.25 percent. Consequently, a oneyear CD returned 3.78 percent, and 23 percent of consumers owned a CD. The current federal funds rate is targeted at 1 percent to 1.25 percent. As a result, we are currently seeing a one-year CD returning 1.5 percent, and 15 percent of consumers owning a CD. Money market account (MMA) usage has dropped as well. In 2007 we saw rates of 4.36 percent and 21 percent consumer ownership. Currently the rate is 1.2 percent, and just 17 percent of consumers indicate ownership. Figure 1: 10-Year Insured Deposit Product Usage Trend Any checking 98% 97% Regular checking Interest checking 51% 48% 58% 54% Any savings 70% 70% MMA 21% 17% CD 15% 23% 0% 20% 40% 60% 80% 100% Source: Raddon Research Insights 5 5

6 Declining Participation in Investment, Retirement Products Use of investments has declined from one half (51 percent) of consumers owning any type of investment to a little more than one-third (37 percent) in The only two investment vehicles trending positively are individual stocks and individual bonds. Mutual fund ownership shows the greatest decline in usage. Today, 23 percent of consumers indicate ownership of a mutual fund, compared to 36 percent in The volatile nature of the stock market since 2008 is one catalyst for the decline in mutual fund usage. Stock mutual funds have been hit the hardest. Figure 2: 10-Year Insured Investment Product Usage Trend Any Investment 37% 51% Any Mutual Fund Individual Stocks 17% 19% 23% 36% Annuities 10% 8% US Treasury Individual Bonds 6% 5% 6% 12% 0% 20% 40% 60% 80% 100% Source: Raddon Research Insights 6