With customers concerned about safety, institutions tout certificates of deposit
With global financial institutions failing and trillions in investor dollars evaporating, Inland Northwest banks and credit unions are reassuring depositors their money is safe, and many are offering high-interest certificates of deposit to capture money from people fleeing unsound banks and tanking stock markets.
Several area institutions are reporting double-digit percentage growth in deposits compared with a year ago. Many people were trying – often unnecessarily – to divide deposits among several banks in a bid to assure no one held more than the $100,000 insured by the FDIC.
The federal financial bailout measure enacted last week raises the limit for banks and credit unions, which have a separate insurance fund, to $250,000 through at least the end of 2009. That may slow the shuffling, industry officials said, but it probably won’t by itself quiet depositors’ fears.
Despite their efforts, some banks are losing deposits to institutions outbidding them for “hot” money, or because the economic slowdown is putting pressure on household incomes.
The FDIC on Wednesday released information on bank deposits as of June 30. Deposits statewide in Idaho and in Kootenai County had dropped compared with June 2007, by 2.8 percent and 4.8 percent, respectively.
Deposits grew in Washington by 6.2 percent and in Spokane County by 6.7 percent.
The decline in Idaho is “kind of a surprise,” said Idaho Director of Finance Gavin Gee.
He said some Idaho depositors were using the Internet to get higher returns on CDs offered by out-of-state banks. Also, with unemployment rising, people are tapping their financial reserves, he said.
Gee said some of the outflow has been reversed as investors deposit cash they raised by selling stocks.
When state-chartered banks report deposits later this month, he said, “We are expecting to see some banks have actually picked up deposits.”
For megadepositors, Inland Northwest Bank offers the Certificates of Deposit Account Registry Service, which provides as much as $50 million in FDIC coverage by splitting large sums among 2,500 banks.
Inland’s Executive Vice President Chris Jurey said those deposits earn slightly less, but customers know their fortunes are secure. One customer has money in 25 banks, he said.
Deposits at Inland are flat, Jurey said, but like other bankers he reported safety-minded customers dividing and subdividing accounts.
“It’s kind of like a chess game,” he said.
Sterling Savings Bank had become Spokane County’s largest depository as of June 30, with $1.7 billion in the vaults. Sterling is advertising “boring” CDs.
Sterling’s Executive Vice President Dave Brukardt said the bank is emphasizing stability, not rates, to customers. “We want to reassure them there is a place for their money,” he said.
Wheatland Bank Chairman Sue Horton predicted CD rates will drop in the wake of the Federal Reserve Bank’s 0.5 percent rate cut Wednesday.
Horton said Wheatland, with year-over-year deposit growth of more than 30 percent, has not rolled over higher-interest CDs because it does not need to compete with banks more in need of that money.
High rankings for soundness are bringing in new customers more concerned with safety than returns, she said, adding that a few new depositors have paid penalties for premature withdrawal of money elsewhere in order to make a deposit with Wheatland.
“There is a lot of fear,” Horton said.
At Spokane Teachers Credit Union, President Steve Dahlstrom said deposits at the end of September were up 20 percent compared with last year. He predicted more unrest as individuals try to cope with financial strife most have not experienced in their lifetimes.
“This thing will change the banking industry,” he said.
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