The current landscape of business deposits may change when a Federal Reserve Act section is repealed in July.
That repeal of Section 19(i) of the Federal Reserve Act is set to come July 21 as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Section 627.
The change, which will allow business customers to earn interest on their checking accounts, is projected to trigger a two-dimensional shift in business accounts, according to research firm Market Rates Insight in San Francisco.
A balance shift among business account types is likely to occur at the point of rate convergence, MRI noted. Assuming that the interest rates offered on business checking will mirror the rates currently offered on high-yield consumer-checking accounts $10,000 and over, “it is very likely that balances will shift from business money market account and maturing business certificates of deposit of nine months or less into business checking due to lack of yield differentiation,” according to the firm.
Currently, a large number of high-yield retail checking accounts are priced above the national average, which indicates heightened competition, MRI said. The same scenario exists with MMAs but not with savings or CDs, where the majority of the rates offered are below the national average.
“Not every business customer is going to jump on the interest-checking bandwagon,” said Dan Geller, executive vice president at MRI. “Some customers may prefer to have the unlimited FDIC insurance on non-interest checking until the expiration date of December 31, 2012.”
Geller said some banks and credit unions are sitting on the fence and are waiting to see what others are going to do before they publish their new business checking interest plans for two reasons.
One, non-interest business accounts are very profitable, and any change might jeopardize the profitability of these accounts, Geller said. Second, no one wants to be the first because if business customers do not like the new offer, the institution might lose the account, he add