NEW YORK -- Banks struggling to retain retail deposits in the face of low interest rates are girding for a new wave of withdrawals in April.
It is the second-most-active month for certificates of deposit to mature, according to Bank Rate Monitor, which calculates that $110 billion of small CDs are slated to mature next month.
Each year, many investors plow their spring income tax refunds into short-term CDs, making them ripe for rollover or withdrawal six to 12 months later. Moreover, a new cycle of April maturities was created by the October 1987 stock market crash, which induced investors to redeploy their equity income into six-month CDs.
Citibank is gearing up for the maturing of about $1.7 billion in small CDs between now and the beginning of May, said Loren Smith, managing director of New York bank marketing.
Until rates began plummeting earlier this year, bankers were relatively sure that retail investors would roll over their maturing certificates for another six to 12 months.
But yields on CDs have declined 33 percent from a year ago, making stocks, mutual funds, and other riskier investments more attractive, even to conservative investors.
Retail CD liabilities nationwide declined by $15 billion during 1991, to $586 billion, according to the Federal Reserve Board in Washington.
Mr. Smith said Citibank has been losing CD customers faster than it did last year. About 75 percent of its CDs this year are rolling over into the same maturities, compared with a retention rate of nearly 94 percent a year ago, he said. However, he noted that overall balances per customer are up 8 percent.
From a funding viewpoint, few bankers are panicking about the outflow. That's because most of their institutions can obtain short-term purchased funds in the public markets at rates close to what they have to pay for CDs. They also are not making a huge amount of loans that need to be funded.
"I would be surprised in April if you see any type of aggressive pursuit of these deposits," said Frank Anderson, an analyst at Stephens Inc. in Little Rock, Ark. "In the past, banks have been extremely aggressive in trying to pick up deposits" from other institutions. "Now a lot of times they won't even bid on them."
Nevertheless, leading bankers are busily marketing other investments to retain customers.
"It's not like we can convince people to stay in banking products all their lives," said Richard Davies, vice president and head of the investment services department at First National Bank of Chicago.
First Chicago has recently more than doubled, to about 40, the number of registered representatives who are selling mutual funds, annuities and other products to customers at its branches, Mr. Davies said.
He expects about 80 percent of the bank's CD customers, who have more than $300 million maturing in April, to renew the instruments.
And he insists: "In the current rate environment, we've chosen not to price ridiculously to go after deposits."