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Unformatted text preview: CHAPTER 12 MANAGING AND PRICING DEPOSIT SERVICES Goal of This Chapter : This chapter has multiple goals. One of the most important is to learn about the different types of deposits financial institutions offer and, from the perspective of a manager, to discover which types of deposits are among the most profitable to offer their customers. We also want to explore how an institution’s cost of funding can be determined and examine the different methods open to institutions to price the deposits and deposit-related services they sell to the public. Key Topics in This Chapter • Types of Deposit Accounts Offered • The Changing Mix of Deposits and Deposit Costs • Pricing Deposit Services and Deposit Interest Rates • Conditional Deposit Pricing • Rules for Deposit Insurance Coverage • Disclosure of Deposit Terms • Lifeline Banking Chapter Outline I. Introduction: The Importance of Deposits and the Challenge of Managing Deposits II. Types of Deposits Offered by Banks and Other Depository Institutions 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. Individual Retirement Accounts (IRAs) 5. Keogh Plans 6. Roth IRAs Ill. Interest Rates Offered on Different Types of Deposits A. The Composition of Bank Deposits 1. Trend Toward Interest-Bearing and Nontransaction Deposits 2. The Importance of Core Deposits 3. Changes in the Relative Importance of Other Types of Deposits 163 B. Cost of Different Deposit Accunts IV. Pricing Deposit-Related Services V. Pricing Deposits at Cost Plus Profit Margin A. Estimating Deposit Service Costs B. An Example of Pooled Funds Costing VI. Using Marginal Cost to Set Interest Rates on Deposits A. Conditional Pricing VII. Pricing Deposits Based on the Total Customer Relationship A. The Role That Pricing and Other Factors Play When Customers Choose a Depository Institution to Hold Their Accounts VIII. Basic (Lifeline) Banking: Key Services for Low-Income Customers IX. Summary of the Chapter Concept Checks 12-1. What are the major types of deposit plans depository institutions offer today? 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....
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This note was uploaded on 08/06/2009 for the course BUSINESS 4444 taught by Professor Dr.dale during the Spring '09 term at University of Texas at Dallas, Richardson.

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