CHAPTER 13 MANAGING AND PRICING DEPOSIT SERVICES

Goal of This Chapter: To review the different kinds of deposits offered by banks today, the composition of bank deposit holdings, and to discover which kinds of deposits are among the most profitable for banks to offer their customers. Key Terms Presented in This Chapter Transaction Deposit NOW Accounts Money Market Deposit Accounts Super NOWs Thrift deposits Passbook savings deposit Time deposits Core deposits Cost-plus-profit deposit pricing Federal Deposit Insurance Corporation Market-penetration deposit pricing Deposit fee schedule Truth in Savings Act Upscale target pricing Relationship pricing Basic (lifeline) banking

Chapter Outline I. II. Introduction: The Importance of Deposits in Banking and the Challenge of Managing Deposits Types of Deposits Offered by Banks A. Transaction (Payments) Deposits 1. Noninterest-bearing Demand Deposits 2. Interest-Bearing Demand Deposits a. NOW Accounts b. Money Market Deposit Accounts (MMDAs) c. Super NOWs B. Nontransaction (Savings or Thrift) Deposits 1. Passbook Savings Deposits 2. Statement Savings Deposits 3. Time Deposits 4. Money-Market CDs 5. Individual Retirement Accounts (IRAs) 6. IRAs 7. Keogh Plans 8. Roth IRAs Interest Rates Offered by Banks on the Different Types of Deposits (The Role of Maturity, Bank Size, Bank Risk Exposure, and the Marketing Philosophy and Objectives of the Offering Bank) Composition of Bank Deposits A. Trend Toward Higher-Cost, But More Stable Deposits B. The Importance of and Changes in Core Deposits C. Changes in the Relative Importance of Other Types of Deposits

Ill.

IV.

V. VI.

VII. VIII.

The Functional Cost Analysis of Different Deposit Accounts Pricing Deposit-Related Services A. Pricing Deposits at Cost Plus Margin 1. Estimating Average Deposit Service Costs 2. Am Example of Pooled Funds Costing B. Using Marginal Cost to Set Interest Rates on Deposits C. Market Penetration Deposit Pricing D. Establishing Price Schedule to Segment Deposit Customers E. Using Upscale Target Pricing F. Pricing Deposits Based on the Total Customer Relationship F. Using Deposit Pricing to Achieve Bank Goals Basic Lifeline Banking Summary of the Chapter Concept Checks

13-1. What are the major types of deposit plans banks offer today? Bank deposit plans can be divided broadly into transaction deposits, thrift or nontransaction deposits, and hybrid deposits. The primary function of transaction deposits is to make payments and these deposits include regular checking accounts and NOW accounts. The principal function of thrift deposits is to serve as accumulated savings and include passbook and statement savings accounts, CDs, and other time deposit accounts. Hybrid deposits combine transactions and thrift features and include money-market deposit accounts and Super NOWs. 13-2. What are core deposits and why are they so important in banking today? Core deposits are the most stable components of a banks funding base and usually include smaller-denomination savings and third-party payments accounts. They are characterized by relatively low interest-rate elasticity. A bank holding a substantial proportion of core deposits has an advantage in having access to a stable and cheaper source of funding with relatively low interest-rate risk. 13-3. How has the composition of bank deposits changed in recent years? There has been a shift in the publics holdings of deposits toward greater relative proportions of the highest-yielding time deposits and toward hybrid accounts that maximize depositor returns, while still giving them access to deposited funds to make payments. 13-4. What are the consequences for bank management and bank performance of recent changes in deposit composition? While bankers would prefer to sell only the cheapest deposits to the public, it is predominately public preference that determines which types of deposits will be created. Banks that do not wish to conform to customer preferences will simply be outbid for

deposits by those who do. Bank managers who fail to stay abreast of changes in their competitors deposit pricing and marketing programs stand to lose both customers and profits. 13-5. Which deposits are the least costly for banks? The most costly? Commercial checkable deposits, particularly regular noninterest bearing demand deposits, are usually the least costly for banks. The most costly deposits are passbook savings accounts having substantial deposit and withdrawal activity and higher interestrate time deposits. 13-6. First State Bank of Pine wishes to change its marketing strategy in an effort to lower its fund-raising costs and maximize the banks profitability. The new strategy calls for aggressive advertising of new commercial checking accounts and interest-bearing household checkable deposits and de-emphasizes regular and special checking accounts in the hope of lowering fundraising costs and maximizing profits. What are the possible advantages and possible weaknesses of this new marketing strategy? The Functional Cost data presented in the text suggest that certain kinds of checkable deposits are often among the least-cost deposits a bank can sell (especially because of low or nonexistent interest rates paid) so First State Bank may be able to achieve some of its profit and cost goals with the proposed new strategy. Moreover, adjusted for revenues generated through the use of deposited funds, interest-bearing checking accounts appear to be more profitable than regular (noninterest-bearing) accounts and commercial checking services more profitable than retail (personal) checking services. However, the deposit services that First State Bank wants to pursue more aggressively tend to be more interest-sensitive and less loyal to a bank and, thus First State Bank may be adding to its liquidity problem with the new strategy. 13-7. Describe the essential differences between the following deposit pricing methods in use today: cost-plus pricing, market-penetration pricing, conditional pricing, upscale target pricing, and relationship pricing? Cost-plus deposit pricing encourages banks to determine what costs they are incurring in labor and management time, materials, etc., in offering each deposit service. Cost-plus pricing generally calls for a bank to charge deposit service fees adequate to cover all the costs of offering the service plus a small margin for profit. Market-penetration pricing involves setting a below-cost and/or below- market price for deposit services in an effort to capture as many customer deposit accounts as possible. Because it is usually costly for a customer to move certain kinds of deposits, especially payments accounts, the fees on certain deposits that were attracted through penetration pricing eventually may be raised closer to a cost-recovery or profit- making level. Conditional pricing is used today as a tool by banks to attract the kinds of depositors they want to have as customers. With this pricing technique a bank will post a schedule of offered interest rates or fees assessed for deposits of varying sizes and based on account

activity. Generally larger volume deposits carry higher interest returns to the depositor or are assessed lower service charges, encouraging customers to hold high average deposit balances which gives the bank more funds to invest in earning assets. Upscale target pricing is the use of carefully designed deposit advertising programs and deposit pricing schemes to appeal to customers with higher levels of income or net worth, such as business owners and managers, doctors, lawyers, and other professionals. Finally, relationship pricing involves basing fees charged a customer on the number of services and the intensity of use of services the customer purchases from a bank. 13-8. A bank determines from an analysis of its cost-accounting figures that for each $500 minimum-balance checking account that it sells account processing and other operating costs will average $4.87 per month and overhead expenses ran an average of $1.21 per month. The bank hopes to achieve a profit margin of 10 percent of monthly costs. What monthly fee should the bank charge a customer who opens one of these checking accounts? The relevant formula is: Unit Price Charged per Month In this case: Unit Price Charged Per Month = $4.87 + $1.21 + 0.10 x ($4.87 + $1.21) = $6.69 13-9. To price deposits successfully, banks must know their costs. How are these costs determined using the historical average cost approach? The marginal cost of funds approach? The historical average cost approach looks at the past. It asks the following question: what funds has the bank raised to date and what did they cost? The marginal cost deposit-pricing method focuses upon the weighted average cost of new funds raised from all of the different sources of funds the bank draws upon or plans to draw upon in the current period. 13-10. How can the historical average cost and marginal cost of funds approaches be used to help select assets (such as loans) that a bank might wish to acquire? The historical average cost rate is called break even because the bank must earn at least this rate on its earning assets (primarily loans and securities) just to meet the total operating costs of raising borrowed funds and the bank's stockholders' required rate of return. Therefore, the bank will know the lowest rate of return that it can afford to earn on assets it might wish to acquire. The marginal cost of funds approach can be used as a guide to select loans and other bank assets because the bank interested in profit maximizing would want to be sure to cover its fund-raising costs. Operating = Expense Per Unit Overhead + Expense Per Unit Planned + Profit Margin Per Unit

13-11. What is meant by the statement, "Deposits are quasi- fixed factors of production for banks"? Does this statement have any bearing on how banks market their deposit services? Deposits can be quasi- fixed production factors because the process of choosing a bank is often costly for a customer and the cost of moving a deposit (particularly a transaction deposit) also can be very costly. This statement impacts marketing deposit services in that attracting a deposit is usually more difficult than retaining a deposit, especially for transaction accounts. 13-12. What factors do household depositors rank most highly in choosing a bank for their checking account? Their savings account? What about business firms? Studies cited in this chapter indicate that households (individuals and families) appear to consider, in rank order, the following factors in choosing a bank to hold their checking account: convenient location, availability of other services, safety, low fees and low minimum balances, and high deposit interest rates. In selecting a bank to hold their savings account households appear to consider, in rank order: familiarity, interest rate paid, transactional convenience, location, availability of payroll deduction, and any fees charged. Business firms, on the other hand, seem to consider such factors as the financial health of the lending institution, whether the bank will be a reliable source of credit in the future, the quality of bank officers, whether loans are competitively priced, the quality of financial advice given, and whether cash management and operations services are provided. 13-13. What does the 1991 Truth in Savings Act require bankers selling deposits inside the United States to tell their customers? The Truth in Savings Act requires bankers to fully inform their deposit customers on the terms offered each depositor. The customer must be told when a new account is opened or if a deposit is renewed, what annual percentage yield (APY) is being offered and what minimum balance is required to receive that yield. Moreover, the depositor must be informed about any penalties or service fees which could reduce his or her expected yield. If the terms of a deposit are changed in a way that would reduce the depositor's return advance notice must be given to the account holder. 13-14. Using the APY formula required by the Truth in Savings Act a customer holds a savings deposit for a year. The account contained a balance of $2,000 for 180 days and $100 for the remainder of the year. If the bank paid this depositor $88.50 in interest earnings for the year, what APY did this customer receive? The correct formula is:
365 ? Interest Earned ? APY = 100 ?(1 + ) Daysin Period - 1? Average Account Balance ? ?

In this instance,
$88.50 365365 ? ? APY = 100 ?(1 + ) - 1? $1036.99 ? ?

or APY = 8.53 percent, where the average account balance is:

$2000 x 180 days + $100 x 185 days = $1036.99 365 days

13-15. What is lifeline banking? What pressures does it impose on bank managers? Lifeline banking consis ts of basic service packages offered by banks to customers not generally able to afford conventional bank service offerings. The essence of these services is that they carry low service fees and usually do not offer all of the features of banking services carrying full service fees. The pressure on bank managers to offer basic or lifeline services has aroused a big controversy. From a profit motive point of view banks should not offer unprofitable services . On the other hand, banks are partially subsidized by government in the form of low-interest loans and deposit insurance and, therefore, have some public-service responsibilities which may include providing certain basic services to all potential customers, regardless of their income or social status.

13-16. What does the Expedited Funds Availability Act require U.S. banks to do? The Expedited Funds Availability Act mandates a time schedule that sets maximum delays for the receipt of deposit credit that banks can use, and it requires banks to inform their customers about their policies for making funds available for customer use. Problems 13-1. Exeter National Bank has a funding mix to support its assets as follows: Core deposits/Assets Large Negotiable CDs/Assets Brokered Deposits/Assets Other Deposits/Assets Money Market Liabilities/Assets Other Liabilities/Assets Equity Capital/Assets = = = = = = = 8.33% 25.00% 10.83% 23.33% 15.83% 11.67% 5.00%

A. The proportion of core deposits at Exeter is exceptionally low, while large CDs and other money-market borrowings make up more than 40 percent of the banks total funding sources. This funding mix tends to subject the bank to excessive vulnerability to quick withdrawal of funds and high interest-rate risk exposure. Exeter also appears to be excessively dependent on brokered deposits which are highly volatile and interestsensitive. Adding in these brokered deposits, more than half of Exeters assets are funded with highly interest-sensitive deposits and money- market borrowings. Mana gement needs to expand the banks core deposits and other more stable funds sources. B. If interest rates rise, Exeter will experience higher interest costs immediately or within hours or a few days on at least 50 percent of its funding sources. Unfortuna tely all but $65 million of its $600 million in total assets are longer-term, inflexible assets whose interest yields cannot be adjusted as rapidly as the interest rates to be paid out on the banks liabilities. Other factors held equal, the banks earnings will be squeezed. Management needs to do some serious restructuring work on both sides of the banks balance sheet in moving toward more flexible-return assets and more flexible-cost liabilities, and to move toward greater use of interest-rate hedging techniques. 13-2. Kalewood National Bank has experienced marked changes in its deposit mix over the last 4 years. Regular and special checking accounts have declined sharply from $378 million to $235 million, while interest-bearing checking accounts rose from $287 million to $392 million. Passbook savings deposits have fallen by more than $200 million while money-market deposit accounts, retirement accounts, and both small and large ($100,000 +) CDs have all risen substantially. Management has several reasons to be concerned about these developments because the banks funds are shifting into accounts bearing significantly higher interest costs, while the bank is suffering substantial erosion in its core deposits represented by regular (passbook) savings deposits and small checking accounts. Thus, more interest-sensitive funds are supplanting deposits that are more loyal and less interest-elastic. The bank may find its profits are likely to be squeezed by higher interest costs and its earnings may become more volatile if market interest rates experience significant changes in the period ahead because a greater portion of the banks funding is coming from more interestsensitive deposits. A possible offsetting advantage is the shift away from deposits that can be withdrawn without notice (i.e., regular and special checking accounts and passbook savings deposits) toward longer-term deposit instruments with fixed maturities, giving the bank a somewhat longer term and, perhaps, somewhat more predictable funding base. 13-3. Merchants National Bank has received $800 million in total funding from the sources listed below with their associated costs also shown. Funding Source Checkable Deposits Time & Savings Deposits Amount ($ millions) 200 400 Interest Costs 3% 9% Noninterest Costs 7% 2% Additional Costs 15% 5% Total Costs 25% 16%

Money-Market Borrowings Stockholders' Equity

100 100

10% 22%

1% -----

2% -----

13% 22%

What is Merchants' weighted average interest cost on the total volume of funds raised, figured on a before-tax basis? If the bank's earning assets total $700 million, what is its break-even cost rate? What is Merchants' overall historical weighted average cost of capital? Solutions: Funding Source Checkable Deposits Time & Savings Deposits Money-Market Borrowings Stockholders' Equity Totals Amount ($ millions) 200 400 100 100 700 Interest Costs 6 36 10 22% 52 Noninterest Costs 44 28 3 ----75 Total Funding Costs 50 64 13 22% 127

a) Weighted Average Interest Cost = (Total dollar interest) / (Total deposits and borrowing) = $52 million / $700 million = 0.0743 or 7.43% b) Break-even cost rate = (Total funding costs) / (earning assets) = 127/700 = 0.1814 or 18.14% c) Merchants' historical weighted-average cost of capital (Before-tax) = (Breakeven cost rate * proportion of borrowed funds) + (before-tax cost of stockholders' equity * proportion of stockholders' equity) = [(18.14%) * (700/800) + (22%) * (100/800)] = 15.87% + 2.75% = 18.62% 13-4 State Security Bank wants to make new loans of $400 million, but needs $450 million in order to have sufficient net funds to make the new loans. The bank estimates it can raise the following mix of funds: Source of Funds Dollar Amount ($ millions) Interest Rate Noninterest Cost Rate Total Interest Expenses Total Noninterest Expenses $ 1.46 $ 9.06 $10.52

Time Deposits Transaction Deposits

325 125 450

8.75% 0

0.45% 7.25%

$28.44 0 $28.44

The bank's pooled marginal funds cost must be: $28.44 million + $10.52 million = 8.66% $450 million

With only a net $400 million in funds the bank can invest, the bank's hurdle rate over total earning assets must be: $38.96 Million = 9.74% $400 Million 13-5. First Metrocentre Bank posts the following schedule of fees for its household and small business checking accounts: ? For average monthly account balances over $1500 there is no monthly maintenance fee and no charge per check. ? For average monthly account balances of $1000 to $1500 a $2 monthly maintenance fee is assessed and there is a $.10 charge per check. ? For average monthly account balances of less than $1000, a $4 monthly maintenance fee is assessed and there is a $.15 per check fee. What form of deposit pricing is this? What is First Metrocentre trying to accomplish with its pricing schedule? Can you foresee any problems with this pricing schedule? First Metrocentre Bank has posted a schedule of deposit fees that allows the customer service-charge free checking for average monthly account balances over $1500. Lower balances are assessed an inverse monthly maintenance fee plus an increased per-check charge as the average monthly account balance falls. This is conditional deposit pricing designed to encourage more stable, larger-denomination accounts which would give the bank more money to use and, perhaps, a more stable funding base. The fees on under$1000 accounts are stiff which may drive away many small depositors to other banks. 13-6. Emerald Isle National Bank finds that it can attract the following amounts of deposits if it offers new depositors and those rolling over their maturing CDs the interest rates indicated below: Expected Volume of New Deposits $ 5 million 15 million 19 million 22 million 23 million Rate of Interest Offered Depositors 5.0% 5.5 6.0 6.5 7.0

Management anticipates being able to invest any new deposits raised in loans yielding 8 percent. How far should the bank go in raising its deposit rate in order to maximize total profit (excluding interest costs)? Solution: Expected Inflows Rate Offered on New Total Interest Cost Marginal Interest Cost Marginal Cost Rate Marginal Revenue Rate Exp. Diff. In Marg. Rev and Total Profits Earned

$5 15 19 22 23

on New Funds 5.0% 5.5 6.0 6.5 7.0

Cost 0.250 0.825 1.140 1.430 1.610

Cost 0.250 0.575 0.315 0.290 0.180 5.000% 5.750 7.875 9.667 18.000

Rate 8.0% 8.0 8.0 8.0 8.0

Rev and Cost +3.0% +2.25 +0.125 -1.667 -10.000

Earned $0.150 $0.375 $0.380 $0.330 $0.230

Emerald Isle National Bank should raise its deposit rate to 6.0%, attracting $19 million in new deposits; because up to that point the marginal revenue rate is greater than the marginal cost rate and total profits are also rising. At 6.5%, the marginal cost rate is greater than the marginal revenue rate and total profits have fallen from a high of $0.38 million back down to $0.33 million. 13-7. Silverton Bank plans to launch a new deposit campaign next week in hopes of bringing in from $100 million to $600 million in new deposit money, which it expects to invest at an 8.75 percent yield. The bank's rate and deposit volume forecast is given below: Expected Inflows $100 million $200 million $300 million $400 million $500 million $600 million Required Rate 5.75% 6.25% 6.80% 7.40% 8.20% 9.00%

What volume of deposits should the bank try to attract to ensure that marginal cost does not exceed marginal revenue? Solution: Expected Inflows Rate Offered on New Funds 5.75% 6.25% 6.80% 7.40% 8.20% 9.00% Total Interest Cost 5.75 12.50 20.40 29.60 41.00 54.00 Marginal Interest Cost 5.75 6.75 7.90 9.20 11.40 13.00 Marginal Cost Rate Marginal Revenue Rate 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% Exp. Diff. In Marg. Rev and Costs +3.00% +2.00% +0.85% -0.45% -2.65% -4.25% Total Profits Earned $3.00 $5.00 $5.85 $5.40 $2.75 -$1.50

$100 $200 $300 $400 $500 $600

5.75% 6.75% 7.90% 9.20% 11.40% 13.00%

The marginal revenue rate is greater than the marginal cost rate up to $300 million in new deposits. At $400 million, the marginal cost rate of 9.2% is greater than the marginal

revenue rate of 8.75%. Therefore, Silverton Bank should try and attract $300 million in new deposits. 13-8. Needles State Bank finds that its basic checking account which requires a $400 minimum balance, costs the bank $3.13 per month in servicing costs, $1.18 per month in overhead expenses, and a profit margin is added of $0.50 per month. What monthly fee should the bank charge each customer? Following the cost-plus-profit approach, the monthly fee should be: Monthly fee = $3.13 + $1.18 + $0.50 = $4.81 per month.

If the bank saves about 5 percent in operating expenses for each $100 held in balances above the $400 minimum, then a customer maintaining an average monthly balance of $1,000 should save the bank 30 percent in operating costs.

The appropriate fee for this customer would be: [$3.13 -0.30 ($3.13)] + $1.18 + $0.50 = $2.19 + $1.18 + $0.50 = $3.87 per month. 13-9. Clyde Appleton earned $12.24 in annual interest income from his savings deposit. Clyde's deposit balances each month of the year were as follows: January February March April May June $400 250 300 150 225 300 July August September October November December $350 425 550 600 625 300

What is the APY earned on Clyde Appleton's account? Clyde's account had an average balance this year of: [$400 x 31 days + $250 x 28 days + $300 x 31 days + $150 x 30 days + $225 x 31 days + $300 x 30 days + $350 x 31 days + $425 x 31 days + $550 x 30 days + $600 x 31 days + $625 x 30 days + $300 x 31 days] 365 days = $373.56 Then the APY must be:

$12.24 365/365 ? ? APY = 100 ?(1 + ) 1? = 3.28 percent $373.56 ? ?

13-10. First and Merchants National Bank of Leetown quotes an APY of 7 percent on a one-year money market CD sold to one of the small businesses in town. The firm posted a balance of $2500 the first 90 days of the year, $3000 over the next 180 days, and $2750 for the remainder of the year. How much in total interest earnings did this small business customer receive for the year? Using the APY formula we can fill in the variables whose values are known and find the unknown interest earnings. Thus:

? Interest Earnings 365/365 ? APY = 100 ?(1 + ) 1? Average Balance ? ?

Interest Earnings 365/365 ? ? 7% = 100 ?(1 + ) 1? $284.64 ? ?

Where the account's average balance is found from: Average Balance =

[$2500 x 90 days + $3000 x 180 days + $2750 x 95 days ]

365 days

= $2811.64 Then:

? Interest Earnings ? 7% = 100 ? ? = 0.03557 x Interest Earnings $2811.64 ? ?

or Interest Earnings = $196.80 Web Site Problems 1. How has the composition of deposits changed at your most popular local bank over the past 10 years? Where on the web can you go to get this information? Using points made in the chapter, see if you can explain why your local banks mix of deposits is changing the way it is. How can bankers influence the trends occurring in the composition of their deposits? One place to find out the composition of bank deposits over the last ten years is to look at the UBPR. The UBPRs that are found on line only go back to 1995. However, this is long enough to get a feel for the changes in the deposit accounts at Bank of America.

Deposits Demand Deposits Now and ATS Accounts Money Market Deposit Accts. Other Savings Accounts Time Deposits (< $100,000) Time Deposits (>$100,000) Deposits in Foreign Branches Total Deposits as % TA

2000 9.72 .95 16.89 9.00 8.78 5.84 12.33 63.53

1999 11.21 1.25 18.86 7.07 8.19 5.46 15.84 67.88

1998 12.98 2.14 20.35 4.23 6.99 4.71 20.61 72.02

1997 14.14 2.74 16.60 4.94 7.12 4.00 22.39 72.43

1996 14.95 5.07 10.41 6.33 6.65 3.48 25.55 72.45

1995 15.41 5.54 11.55 7.12 6.97 3.00 23.39 72.98

As can be seen from the table, Bank of America has used less and less deposits as a source of funds in recent years. In addition the composition of funds has changed. They have been using fewer demand deposits and other low cost sources of funds and more money market deposit accounts and other more expensive sources of funds. These changes at Bank of America reflect the increasing competition for funds among all banks. Bank deposits are driven primarily by the demand by customers. The changes at Bank of America probably also reflect the pricing strategies that BOA is using. These pricing strategies probably are a reflection of the goals and objectives of Bank of America. 2. Which U.S. insured bank is currently quoting the highest interest rates on checking accounts? Savings accounts? Money market deposits? Three and six month CDs? What web site will give you this information? What did you find when you checked? There was not much information about checking accounts. However, one good web site that gives information on many different types of deposits and loans is http://www.rate.net. This web site lists the top 10 in a number of different categories. There are many other sites that will give this information as well. One way to find these sites is to do a search on sites with the highest interest rates . Type of Account Regular Savings Money Market Deposit 3 month CD 6 month CD Super Now Bank with Highest Rate E-Trade Bank Bank of Utica Superior Bank FSB Washington FSB Charter One Rate 4.14% 5.00% 4.65% 5.00% 5.00%

3. Compare your local banks interest rates on six month and one year certificates of deposit (check the newspaper ad or call their customer service line) with the best rates on these savings instruments offered by banks quoting the highest deposit interest rates in the U.S. Why do you think there are such large interest rate differences between your local bank and the banks currently posting the highest interest rates? Can you explain whats going on here?

Some banks list their rates on their web site. After checking the Bank of America web site, it was easy to find rates for Bank of America. It is listed by state. In the state of Oklahoma, Bank of America rates on 6 month and 1 year CDs respectively are 3.30% and 3.45%. The highest 6 month and 1 year CD rates in the country are 5.00% and 5.40% respectively. These rates can be different for many reasons. The most likely reason is that the banks with the highest rates need deposits and want to attract new deposits. However, they run a risk because the customers that are attracted to these types of deposits tend to be very rate sensitive and these deposits can be rather volatile.