Deposit Flow Seasonalities and the January Effect in Retail Deposit Rates
54 Pages Posted: 8 Dec 2019
Date Written: November 21, 2019
Deposits flow out of the US banking system in January and February and flow in later in the year. In response to this outflow, banks increase rates on retail deposit products in January, including time, savings, and money market deposit accounts. Banks tend to offer highest deposit rates in January, after which the rates decline monotonically, reaching the minimum in December. The effect is more pronounced after the financial crisis, when banks relied less on nondeposit borrowings to replace outflowing liquidity. Consistent with the seasonal outflow of deposits, increased reliance on deposits, especially demand deposits, is associated with a stronger January effect in deposit rates at the bank level.
Keywords: Deposit pricing, Flow of funds, January effect
JEL Classification: G12, G21
Suggested Citation: Suggested Citation