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Deposit growth at online banks strong despite rate cuts, Fitch says

Deposits at online banks have continued to grow ahead of the broader industry growth rate, despite online banks cutting deposit rates more aggressively than traditional branch-based banks, Fitch Ratings said.

The rating agency said U.S. retail deposit growth for the seven online banks it tracks outpaced that of the broader industry during the last Fed tightening period, albeit off of a lower base.

Fitch's view of the stability of online deposits has generally improved as a result of their performance through the Fed's monetary policy actions over the past few years, said Michael Taiano, a senior director at the rating agency.

Fitch said online bank net interest margins will generally benefit more in the near term from the repricing of retail deposits than those of many traditional banks, most of which did not "meaningfully raise" deposit rates during the Fed's tightening cycle.