Credit unions may have noticed that the yield differentiation between short- and mid-term certificates of deposit at banks shrank over the past year.
According to research firm Market Rates Insight, in March 2010, the interest rate difference between the three-month and the 12-month CD was 44 basis points. Today, the variance decreased to 28 basis points. The same rate variance decrease occurred between the 12-month CD and the 24-month CD. The yield variance between the 24-month CD and the 36-month CD decreased by eight basis points from 38 basis points last year to 30 basis points today.
“The diminishing yield differentiation is reflected in the actual demand for these deposits,” said Dan Geller, executive vice president at MRI. During 2010, balances of short-term CDs, which have terms of three to 12 months, declined by $187 billion, he noted.
At the other end of the spectrum, the balances of long-term CDs, defined as three to five year periods, declined by $9 billion, according to MRI. The rate differentiation between the 36-month and the 48-month CD remained nearly flat at 29 basis points, Geller said. The only increase in rate differentiation occurred between the 48-month CD and the 60-month CD, which increased by seven basis points from 24 basis points to 31 basis points from March 2010 to this month.