Where should a bank or credit union price a deposit rate?
Start from the market, not at it. Know where the market sits and how widely it spreads. Then treat any rate that stands apart from it as a bet: know what it costs, know what it has to earn, and keep score afterwards.
Why is the median not enough?
Deposits move more than they used to. The average checking customer keeps accounts at three institutions, and one in five moved money away from their main bank in the last three months (J.D. Power, 2026). Yet many pricing committees start and end in the same place: collect the rates in the market, take the median, price there. An investor who has sat on many of those committees described the habit to us in nearly those words. The challenge they put to those committees is one question: how do you know? A committee that will not price below the median because customers might leave has usually never tested whether they would.
The median answers one question, where the middle of the market is. It leaves three unanswered:
- How tightly the market clusters. Ten institutions within ten basis points of each other is a different market from ten spread across a full point. The same gap to the median means something different in each.
- What standing apart costs. A rate above the market is paid on every balance it reaches, not only on new money. See what a deposit rate increase really costs.
- Whether the position worked. A finance chief described the same gap on the lending side: auto loan rates were cut and volumes did not move, rates were held elsewhere and volumes rose, and nobody could say why. Deposit pricing has the same blind spot.
How do you read where the market sits?
For each product, look at the rates the institutions you actually compete with post, in your market or in a peer group you choose. Three numbers describe the picture:
| Number | What it tells you |
|---|---|
| The market median | Where the middle of the market sits for that product |
| The Shrug Zone | The band around the median within which a rate reads as in line with the market. Narrow where rates cluster, wide where they scatter |
| Your gap to the nearest Switch Line | The smallest move that would change how your rate reads |
Compare like with like: the same term, the same balance tier, and promotional rates kept apart from standard ones. A 13-month special set against a standard 12-month rate is not a comparison.
What are the three positions, and what does each one mean?
| Position | What it means | What to know before choosing it |
|---|---|---|
| Inside the Shrug Zone | The rate is in line with the market | A move that stays inside the zone may cost little and change little. If the aim is to raise money, check it reaches past the Switch Line |
| Above the upper Switch Line | The rate stands out. It is paying for attention | The Full Reprice Cost, and how much new money the move has to bring in to beat the next-best way of raising it |
| Below the lower Switch Line | The rate stands out the other way. It saves money and puts some balances at risk | What the saving is worth in dollars a year, and which balances are most likely to move |
None of the three is right in general. An institution short of deposits may choose to stand out above the market on one product. One with more deposits than its loans need may sit below it and save the difference. What matters is that the position is chosen, priced and written down.
What should the committee decide?
A lending leader at a credit union told us what the work should end on: the one or two things the reader can actually do. Give the committee choices, not a report of where it stands:
- The choices, each a specific rate for a specific product.
- What each costs, in dollars a year.
- What each has to earn to be worth it: the new money it must bring in, or the balances it can afford to lose.
How do you keep score afterwards?
Write down the assumption behind the decision when it is made: we expect this rate to bring in $15 million in six months, or we expect to lose no more than $5 million. Then check it on a date set in advance, against what the market did in the same period. A volume change means little until you know whether competitors moved at the same time.
Over a few cycles, the record answers the investor's question with the institution's own evidence. How do you know? Because the last three times, this is what happened.
See something wrong? Report an error.