Apache is functioning normally

July 4, 2024 by Brett Tams

Want to hear some good news about mortgage rates that involves them being a lot higher than they previously were?

Yes, I know that sounds absurd, but hear me out. There are now millions more mortgages that feature rates above 6.5%, and many with rates above 7%.

There are also millions less that feature rates below 5% than there were just a couple years ago.

Why is this good you ask? Well, it means the effects of mortgage rate lock-in are beginning to wane.

It also means millions of borrowers might stand to benefit from a refinance is rates eventually drop.

Nearly a Quarter of Mortgage Holders Have an Interest Rate Above 5%

The latest Mortgage Monitor report from ICE released this week found that there’s been quite a shift in outstanding mortgage rates.

While it was quite common for a homeowner to hold a 30-year fixed priced at 2-3% a few years ago, it’s becoming less so today.

In fact, as of May some 24% of those with outstanding home loans had a mortgage rate at or above 5%, up from just 10% two years ago.

At the same time, there were there nearly six million (5.8M) fewer mortgages with rates below 5% than there were just two years ago.

And nearly five million (4.8M) fewer with rates below 4%, thanks to borrowers either selling their homes or in some cases pursuing a cash out refinance.

While the low-rate homeowners shed their mortgages via home sale or refinance, a new batch of high-rate homeowners is beginning to take their place.

Since 2022, four million new 30-year fixed mortgages have been originated with rates above 6.5%, and of those roughly half (1.9M) have rates north of 7%.

In other words, the collective outstanding mortgage rate of all homeowners is rising.

This means it’s becoming less normal to have an ultra-low interest rate and that could mean fewer roadblocks when it comes to selling and increasing for-sale inventory.

Why Is This Good Exactly?

In a nutshell, the shift from loose monetary policy to tight Fed policy in the matter of just a year and change wreaked havoc on mortgage rates and the housing market.

We went from 3% 30-year fixed mortgage rates in early 2022 to a rate above 8% by late 2023.

While the Fed doesn’t control mortgage rates, they made a big splash after announcing an end to their mortgage-backed securities (MBS) buying program known as Quantitative Easing (QE).

That meant the Fed was no longer a buyer of mortgages, which immediately lowered their value and raised the interest rate demanded by other investors to buy them.

At the same time, the Fed raised its own fed funds rate 11 times from near-zero to a target range of 5.25% to 5.50%.

While this was arguably necessary to cool off demand in the too-hot housing market, it created a group of haves and have nots.

The homeowners with 2-4% mortgages fixed for the next 30 years, and renters facing exorbitant asking prices and 7-8% mortgage rates.

This dichotomy isn’t good for the housing market. It doesn’t allow people to move up or move down, or for new entrants to get into the market.

Due to the quick divergence in rates for the haves and have nots, home sales have plummeted.

The same is true of refinances, especially rate and term refis, hurting lots of banks and mortgage lenders in the process.

But as the average outstanding mortgage rate climbs higher, there will be a lot more activity in the real estate and mortgage markets.

Here Comes the Refis (Well, Not Just Yet…)

If you look at the chart above, you’ll see that recent vintages of mortgages were dominated by high-rate mortgages.

The distribution of home loans with mortgage rates above 6% surged in 2023 and 2024 as the 30-year fixed ascended to its highest levels in decades.

While this has clearly dampened housing affordability, and led to numerous mortgage layoffs, it’s likely going to be a cyclical challenge that improves each year.

Over time, the low-rate mortgages will be replaced by higher-rate loans. And if mortgage rates moderate as inflation cools, many millions will be in the money a for a refinance.

So aside from mortgage rate lock-in easing and more homes coming to market, which pays off the underlying loans, we’ll also see more refinance activity as recent home buyers take advantage of lower rates.

In fact, we’ve already seen it as the 30-year fixed is roughly 1% below its October 2023 peak, thanks in part to normalizing mortgage spreads.

Those who timed their home purchase badly (in terms of that mortgage rate peak) have already been able to refinance into a lower monthly payment.

And if rates continue to come down this year and next, as is widely expected, we’re going to see a lot more borrowers refinance their mortgages.

This will benefit these homeowners and the mortgage industry, which traditionally relies upon refinances to keep up volume.

So while times have been bleak these last couple years, it’s all part of the process.

The shift out of cheap money and back into reality should get things moving again, whether it’s an uptick in home sales, mortgage lending, or both.

Source: thetruthaboutmortgage.com

Apache is functioning normally

July 4, 2024 by Brett Tams

A simple change to when you make your mortgage payments can save you thousands of dollars—and a few years—on your mortgage obligation.

Many people dream of saying goodbye to their mortgage and living debt-free. Perhaps the most popular method for doing this is making biweekly mortgage payments. These are just what they sound like. Instead of paying your mortgage once a month, you pay every two weeks.

Here’s how it works: You take your required monthly mortgage payment and divide it evenly in two. Then, you make that half-payment every two weeks. If your mortgage payment is $3,000, for example, you’d pay $1,500 today, and then the other $1,500 two weeks from now.

You’d then continue that process every two weeks for the rest of the year—ideally with automatic payments you can set and forget. Because the calendar doesn’t split months evenly, you’ll end up making 26 half-payments over the course of the year, or 13 total monthly payments, instead of 12.

“I’m a big proponent of biweekly mortgage payments,” says David Johnston, a certified financial planner and managing partner of Amwell Ridge Wealth Management in Flemington, N.J. “It’s a way to accelerate your mortgage payoff without hefty lump sums.”

How much can you save with biweekly mortgage payments?

The exact amount of savings you’ll see by making biweekly mortgage payments depends on your loan size, interest rate, loan term and other factors.

“Paying biweekly will save you thousands of dollars over the term of your loan, since it’ll be paid off earlier,” says Steven Conners, founder and president of Conners Wealth Management in Scottsdale, Ariz.

Here’s a look at how making biweekly payments would alter a $500,000 mortgage loan with a 6.5% rate.

	Monthly payments	Biweekly payments
Loan amount	$500,000	$500,000
Payment amount	$3,160 monthly	$1,580 biweekly
Payments per year	12 full payments	26 half payments
Payoff date	Year 30	Year 24
Total interest paid	$637,722	$486,076
Savings	–	$149,646

While cash savings are likely the biggest benefit of making biweekly mortgage payments, there are other perks, too. Paying your loan off earlier, for example, can lighten your financial load as a household, freeing up cash flow to put toward other things—such as investments or your retirement account.

Biweekly payments also allow you to build equity faster. “They act as an equity booster,” says Mike Roberts, co-founder of City Creek Mortgage in Draper, Utah. “The quicker you pay down the principal, the more equity you build in the home.”

Roberts says this extra equity could prove “invaluable” later on if you opt to refinance your loan or take out a home-equity loan or Heloc. (Lenders typically won’t allow you to do either unless you’ll still have at least 20% equity.)

Finally, for many homeowners, biweekly payments just line up with some paycheck schedules better. For example, if you get paid every two weeks, it may be simpler to manage cash flow if your mortgage payments align with your pay days.

“By dividing the payment in half and aligning it with your pay cycle, it may be easier on your overall budget,” says Rachel Caballero, community development manager at TruWest Credit Union in Tempe, Ariz.

There can be downsides to biweekly payments, too. There may be fees from your lender, it could be hard to remember the payments (unless you set up autopay) and you might be taking away cash from other financial goals, such as paying down higher-interest debts or saving for retirement.

Setting up biweekly mortgage payments

With all their benefits, it might be tempting to just divide that payment in half and start biweekly payments right away. But before you dive in, you’ll need to contact your lender or loan servicer.

First, not all servicers will allow you to make biweekly payments. And if yours does, you need to make sure they’ll apply the payment to your principal at the time of payment—not just on your payment’s due date.

“You need to confirm with your servicer that the biweekly payments will actually be applied to your principal,” Roberts says. “Some servicers might hold the extra payments in an escrow account until the end of the month, negating the benefits.”

This essentially means they’ll put the payments in a holding account until your actual due date rolls around. This would keep your earlier-in-the-month payments from reducing your principal balance (and the interest you’re charged on it) as intended.

You should also ask if there’s a fee for setting up or processing biweekly payments. It might seem silly to charge a fee when the lender is actually getting bigger payments from you, but remember those interest savings.

“Less interest cost for you is less interest income for them,” says Troy A. Young, a certified financial planner and founder of Destiny Financial Group in Atlanta.

Source: wsj.com

Apache is functioning normally

July 3, 2024 by Brett Tams

Safe deposit boxes are storage units located in banks that offer a secure way to store important items you may not want to keep at home, such as critical documents, collectibles, and family heirlooms.

Due to the growth of online banking and digital storage, safe deposit boxes aren’t as popular as they once were. However, there are some situations where these boxes can be useful. Here are key things to know about safe deposit boxes.

What Is a Safe Deposit Box?

A safe deposit box (also called a safety deposit box) is a secure locked box, usually made of metal, that stays in the safe or vault of a federally insured bank or credit union. They are typically used to keep valuables, important documents, and sentimental keepsakes protected from theft or damage.

Safe deposit boxes often come in two different sizes, usually 3” by 5” or 10” by 10,” and can be rented for an annual fee. In exchange for the fee, banks provide security measures to protect your valuables, such as alarms and surveillance cameras. In addition, the safe deposit boxes are stored in vaults that are designed to withstand natural disasters such as fires, floods, hurricanes, and tornadoes.

Unlike a bank account, however, the contents of a safe deposit box are not protected by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). As a result, there is still a small risk that you could lose the items in your container due to theft or damage.

Recommended: What Are the Differences Between FDIC and NCUA Insurance?

What You Should and Shouldn’t Keep in a Safe Deposit Box

Safe deposit boxes can be a good place to keep hard-to-replace documents and small valuables that you won’t need to access frequently. However, you generally don’t want to keep any items that you may need to grab in a hurry in the box, and certain items are prohibited.

Here’s a breakdown of things to keep — and not to keep — in a safe deposit box.

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Items Typically Kept in a Safe Deposit Box

• Important documents: Documents that are difficult to replace and often needed for legal purposes are commonly stored in safe deposit boxes. These include: birth certificates, marriage licenses, car titles, divorce records, citizenship papers, property deeds, and mortgage documents.

• Valuables: Jewelry, rare coins, stamps, and other valuable collectibles can be safely stored away from potential theft.

• Financial Instruments: Stock certificates, bonds, and other financial instruments that require safekeeping can be securely stored in a safe deposit box.

• Backup data: You might store external hard drives or USB drives containing sensitive personal or business information here to protect against data loss.

• Personal keepsakes: Irreplaceable items like family heirlooms, photos, and memorabilia can be stored to ensure they don’t get lost or damaged.

Items to Avoid Putting in a Safe Deposit Box

• Cash: While you may be tempted to store some cash in your safe deposit box, you’re likely better off putting the money in a high-yield savings account at a bank or credit union, which will allow your money to grow. The cash will also be insured (up to certain limits) by the FDIC or NCUA.

• Original copies of wills: Original wills should not be stored in a safe deposit box because they may be difficult to access immediately after the owner’s death, delaying probate. You might instead store a copy of a will.

• Durable power of attorney: Similar to wills, these documents might be needed quickly in emergencies, and delays could cause significant issues. Consider storing a copy.

• Passport: If you need to travel urgently, accessing your passport from a bank vault could be problematic due to limited bank hours.

• Frequently used items: Any items you need regular access to should not be kept in a safe deposit box due to limited accessibility.

• Prohibited items: Banks and credit unions generally prohibit the storage of firearms, explosives, weapons, hazardous materials, illegal substances (such as drugs), alcohol, perishable items, and cremated remains.

How Much Does a Safe Deposit Box Cost?

Rental fees vary by the box’s size and financial institution. The average cost to rent a box at a commercial U.S. bank runs between $15 and $350 per year. Additional costs may include fees for lost keys or late payments.

Some banks and credit unions will offer discounts on a safe deposit box cost if you have a relationship with the bank. In some cases, an institution may offer free access to a safe deposit box as a perk to their customers.

How to Get a Safe Deposit Box

To rent a safe deposit box, you’ll generally need to follow these steps:

1. Research your options. Not all banks and credit unions offer safe deposit boxes. You’ll want to find an institution that both provides this service and is conveniently located.

2. Meet the requirements. Many banks require you to be an existing customer with a checking or savings account. However, some banks may allow noncustomers to rent boxes for an additional fee.

3. Provide identification. You’ll need to bring valid identification, such as a driver’s license or passport, to verify your identity. If you plan to allow another person access to your safe deposit box, they will need to be present and show ID as well.

4. Sign a rental agreement. You (and, if applicable, your corenter) will need to sign a rental agreement outlining the terms and conditions of the box rental.

5. Make a payment. You generally need to pay the initial rental fee upfront. Some banks may offer discounts for long-term rentals or automatic payments.

6. Get your key. Upon completing the paperwork, you will receive a key to your safe deposit box. The bank retains a second key. Both keys are required to access the box. If the bank offers keyless access, they will likely scan your finger or hand.

Keep in mind that every time you wish to access your safe deposit box, you’ll need to present your photo ID, as well as your key (if it’s not keyless). The bank may also require your signature before allowing you to open your box.

Recommended: How Long Does It Take to Open a Bank Account?

How Safe Is a Safe Deposit Box?

Safe deposit boxes are generally very secure. They are housed in a bank vault, which offers robust protection against theft, fire, flood, and other disasters. Banks employ multiple layers of security, including surveillance cameras, alarms, and restricted access to the vault area.

When you rent a safe deposit box, the bank typically gives you a key to use. The bank also retains a second “guard key” which must be used by a bank employee in tandem with your key. Some banks now use a keyless biometric entry system, where you scan your finger or hand instead.

However, it’s important to note that the contents of a safe deposit box are not insured by the bank or the FDIC. As a result, you may need to obtain separate insurance or add a rider to your homeowners or renters insurance for coverage.

Recommended: Are Online Savings Accounts Safe?

Pros and Cons of Safe Deposit Boxes

Safe deposit boxes can be a good way to protect your valuables. Here are some of the upsides of renting one:

• Security: Safe deposit boxes offer a high level of security, since they are stored in areas with limited access and stepped-up surveillance.

• Environmental protection: They can protect your valuables from environmental damage, such as a flood or fire.

• Privacy: The contents of a safe deposit box are known only to the renter, offering a high degree of privacy.

• Organization: Safe deposit boxes help keep important documents and valuables in one secure location, making it less likely you will misplace them.

But safe deposit boxes also come with downsides. Here are some to consider:

• Limited access: Access is restricted to bank hours, which can be inconvenient, especially in an emergency.

• Cost: There is an ongoing rental fee, which varies based on the size of the box.

• Not insured: Contents are not insured by the bank or FDIC. Separate insurance may be needed for valuable items.

• Delayed access for loved ones: In the event of the renter’s death, accessing the box may require legal processes that could delay access to important documents.

Recommended: Different Types of Savings Accounts You Can Have

The Takeaway

If you’re looking for a safe place to stash vital papers or valuable possessions, you might consider renting a safe deposit back at a brick-and-mortar bank or credit union. Items stored in these containers are protected against theft, loss, or damage due to a flood, fire, or other disaster.

But the protection has limits: Unlike regular bank accounts, safe deposit boxes are not insured by the FDIC. Also keep in mind that safe deposit boxes aren’t ideal for items you may need to grab in a hurry, since access is limited to banking hours.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

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FAQ

What can I use instead of a safe deposit box?

Alternatives to a safe deposit box include:

• A fire-rated personal home safe: This can offer protection from environmental damage (such as fire or flood). However, a thief could potentially steal the whole safe.

• Digital storage solutions: Cloud services can securely store important documents and data backups.

• An attorney’s office: For legal documents, a trusted lawyer’s office may offer secure storage.

• Private vault facility: These are a viable alternative to a safe deposit box but tend to cost more.

Can safe deposit boxes be jointly shared?

Yes. When you open a safe deposit box, you can designate one or more corenters who will have equal access to the box. This is useful for couples, business partners, or family members who need shared access to important documents and valuables. Each renter typically receives a key, and all corenters’ signatures are required on the rental agreement.

Is it safe to keep money in a safe deposit box?

While it is physically safe to keep money in a safe deposit box, it is not recommended. Cash stored in a safe deposit box does not earn interest and is not insured by the Federal Deposit Insurance Corporation (FDIC). You’re generally better off keeping cash in a high-yield savings account or other insured financial instrument that offers safety, liquidity, and interest earnings.

Do banks know what you put in a safety deposit box?

No. The contents of a safe deposit box are private, and bank employees do not have access to the items stored inside. When you rent a safe deposit box, you receive a key, and the bank retains a second key. Both keys are required to open the box, but only you can open it and see its contents. This ensures privacy and confidentiality.

Photo credit: iStock/AlexSecret

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.

The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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Source: sofi.com

Apache is functioning normally

July 3, 2024 by Brett Tams

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New Home Construction Slows as Mortgage Rates Remain High

Home building in May fell to its slowest pace in four years despite a supply shortage. That trend could put even greater strain on buyers.

Learn more

Apache is functioning normally

July 3, 2024 by Brett Tams

Although you may have never heard the term before, core deposits are a basic concept in retail banking. When customers (probably just like you) deposit funds in a checking, savings, or money market account, financial institutions consider this money to be core deposits. Financial institutions then use core deposits to loan money to other consumers and generate profits through interest-bearing investments. So, generally speaking, growing core deposits helps institutions better leverage these funds and earn profits.

Though this may sound like technical knowledge, the truth is that understanding how core deposits work and why they are important can help you better navigate your banking life.

What Is a Core Deposit?

Simply put, core deposits are a stable source of capital for financial institutions like banks and credit unions. It’s money that consumers deposit and that the bank then turns around and uses elsewhere. For instance, those funds could be part of a loan. Core deposits usually include individual savings accounts, business savings accounts, and money market accounts.

In addition, financial institutions may offer incentives to encourage consumers to deposit money in a specific account to increase their core deposits. Building their capital with core deposits can have an array of advantages for a financial institution, including boosting revenue.

💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 4.60% APY, with no minimum balance required.

How To Calculate Core Deposits

Given that core deposits can reflect a bank’s health, it may be valuable at times to figure out how much a financial institution has. This may be a bit technical for a typical layperson, but here is the technique.

• To calculate core deposits, one can look at the balance sheet or deposit footnotes that consist of checking, savings, and money market deposits. Ideally, it’s best to leave out particular broker or certificate deposits since both deposit accounts tend to follow rates and involve higher costs for the financial institution. Banks that are oversaturated with deposits like this may have liquidity issues and struggle to fund their loan portfolio.

• The next step: Compare the number of core deposits to overall deposits to find the ratio of core deposits.

◦ Banks with 85% to 90% core deposit ratios are considered to be solid financial institutions.

◦ Additionally, banks should generally have a substantial percentage of non-interest-bearing deposits, consisting of about 30% of total deposits. That ratio of 30% or higher also indicates that a financial institution is in good health.

Recommended: When Will Direct Deposit Hit My Account?

Methods for Increasing Core Deposits

The success of a financial institution relies on the growth of its core deposits. For this reason, financial institutions continually look for ways to attract and retain their customer base and increase those deposits. It’s critical to success.

Here are some strategies financial institutions implement to grow their core deposits.

Cultivating Relationships

Banks can boost core deposits by cultivating relationships with their current customers. After a consumer puts their money in the institution (whether by setting up the direct deposit process, electronically, or with a teller or ATM), they are now a client. The bank or credit union can focus on nurturing that relationship, so the consumer uses the bank for all of their banking needs. Perhaps they will move a savings or business account that they keep elsewhere to this bank.

What’s more, if the customer feels valued, they will likely share their experience with friends and family (you may have done this in your own banking life, for instance). This good word of mouth can lead to the growth of core deposits and strengthen the financial organization.

There are a variety of ways to cultivate better customer relationships. With account holders who bank at brick-and-mortar institutions, one technique is to enhance interactions with the staff. For example, a teller or bank representative might suggest personalized products to meet a client’s needs, such as one of the different kinds of deposit accounts. Online banks can also glean their customers’ needs and create tailored offers with incentives, like a cash bonus or additional services (say, budgeting help).

Another initiative might be to reach out to high net worth clients to personalize the relationship, knowing that these individuals are likely to have cash to deposit. Banks that pay attention to their customer’s needs and make an effort to add special touches can improve customer satisfaction, increasing core deposits.

Recommended: How to Deposit Cash at an ATM

Bolstered Online Services

In today’s world of digital financial management, enhancing online services can encourage more customers to deposit funds at a financial institution and potentially do so in larger amounts. Having the latest bells and whistles, such as seamless spending and saving tracking and the most advanced biometric security measures, can be a big plus.

This can be an especially good tactic for smaller financial institutions. Community banks may struggle with growing core deposits. If an institution like this has limited capital, enhancing online services can be an important avenue to pump up those core deposits. Improved online banking services may well cost a fraction of what it does to bolster a physical bank branch. Creating digital services can also help the bank reach more consumers. While a bank branch may generate between 75 and 100 new accounts per month, a digital branch could help increase this number by hundreds.

When opening a new account, many consumers choose to compare options online first. Even if a bank has competitive rates and has conveniently located branches, prospective account holders may choose competing banks if they rank higher on search engines. For this reason, creating an online presence and digital services that are as strong as possible can grow the number of deposits.

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Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!

Offer Tailored Services

Financial institutions that offer tailored services to particular industries or specialized banking products can attract consumers who value these services. For example, banks can identify niches or target audiences in their community that provide the most deposit advantages. If they are doing business in an area known for an abundance of hospitals, a niche bank might develop more banking products and services that meet the needs of healthcare professionals (say, ways to pay off student loans faster). They can mold an incentive strategy around the industry to attract more customers and core deposits.

Recommended: Understanding Funds Availability Rules

Banking and the FDIC

A financial institution must strike a balance between core deposits being available for consumers to withdraw funds and their cash being used to make loans and otherwise generate revenue. (After all, one of the ways a bank makes money is based on charging a higher interest rate on loans than is paid on deposits.)

There are governmental guidelines for this: All financial institutions must have bank reserves, a percentage of deposits they must hold and have available as cash. In the past, this figure has ranged between 3% and 10%. But as of 2020 and the COVID-19 crisis, this requirement was lowered to 0% to stimulate the economy. So, since banks are not required to set aside any deposits, if all of the depositors requested total withdrawals from their accounts, the bank wouldn’t have enough money to fulfill this request.

That’s where the Federal Deposit Insurance Corporation (FDIC) comes in and can insure core deposits. Here’s how much does the FDIC insure: up to $250,000 per depositor, per account ownership category, per insured institution. So even in the very unlikely event that a bank were to fail, consumers will have this amount covered.

The Takeaway

Core deposits — the funds put in checking, savings, and money market accounts — help banks make money and offer loans to consumers. Growing core deposits is vital to an institution’s success, and this goal can be achieved in a variety of ways, including offering more personalized services and more online banking capabilities.

If you are interested in accessing state-of-the-art benefits of digital banking, see what SoFi offers.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

What is the difference between core deposits and purchased deposits?

Core deposits are typically stable bank deposits, such as those in checking accounts and time deposits. Purchased deposits are rate-sensitive funding sources that banks use. These purchased deposits are more volatile and, as rates change, more likely to be withdrawn or swapped out.

What is a non-core deposit?

Non-core deposits are certificates of deposit or money market accounts that have a specified rate of interest over their term.

How much does FDIC cover?

The FDIC covers up to $250,000 per depositor, per account ownership category, per insured institution in the very unlikely event of a bank failure.

Photo credit: iStock/MicroStockHub

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Source: sofi.com

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