High Liquidity Moves CD Money Into MMAs
More money tends to flow out of CDs into money market accounts if the liquidation point, that meeting between the rate of a liquid account and of a term deposit, is high.
Market Rates Insight found that the national liquidation point reached the nine-month term in September. In January, the liquidation point was at zero, meaning all terms rates were higher than MMA rate, according to the research firm.
The national average rate for MMAs at banks at the end of September was 0.37%, and for nine-month CDs, 0.36%. This means that there is no yield incentive to lock money in CDs for up to nine months since they pay equal or less than the MMA account, said Dan Geller, executive vice president of MRI. In comparison, the liquidation point in January of this year was zero term, because the average MMA paid 0.69% and the three-month CD paid 1.07%.
Geller said between January and September of this year, $207 billion was liquidated out of maturing short-term CDs and transferred to MMAs. About $95 billion came from CDs of up to three months, and $112 billion came from maturing CDs of three to 12 months.
The bottom line for credit unions and banks is the higher the liquidation point, the more money is flowing out of CDs into MMAs, according to Geller.