Bank branch deposits declined for the first time in 18 years, according to a new study by Market Rates Insight in San Anselmo, Calif., from their peak of $7,697 billion in January to $7,668 billion in June.
The decrease of $29 billion is only a drop of 0.4%, and converting those numbers to trillions and rounding them up would look like no change at all, but Dan Geller, an executive vice president at MRI, said this reversal is significant because the decline that began in the first quarter accelerated in the second.
The decline was due to bank customers’ lack of interest in CDs, which pulled down the total. Deposits in liquid accounts—checking, savings and money market accounts—actually were up 3.2% over the first half of 2010, from $5,331 billion to $5,502 billion, but couldn’t make up for CDs’ decline.
“We’re reaching the point where the marginal rate of return is so meager that CDs are not effective anymore,” Geller says. “The difference in interest rate between term and liquid accounts is not that different, just a few basis points, so people are choosing accounts from which they can withdraw money any time.”
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