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For First Republic, CDs becoming 'attractive deposit gathering vehicle'


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For First Republic, CDs becoming 'attractive deposit gathering vehicle'

First Republic Bank saw a healthy bump in deposits during the third quarter, and certificates of deposit had a leading role in that growth, management said during a third-quarter earnings call.

The company grew total deposits 14% year over year and 3% quarter over quarter to $74.76 billion. CD products contributed about $1.1 billion of the quarterly deposit growth, while checking deposits added $900 million over the period, President Hafize Erkan said.

CDs offer customers a higher interest rate than other deposit accounts, and as the Federal Reserve raised rates during 2018 and many banks followed suit, rate-paying accounts have come back into the spotlight.

"With the rise in interest rates, CDs are once again proving to be an attractive deposit gathering vehicle," she said.

CDs can also be a good risk management tool for banks during a rising rate environment because they tend to lock in a consumer's rate for an extended period, such as 18 months, Erkan said.

About 60% to 75% of the CD growth was "actually new money" from new households becoming customers or existing clients "bringing their dollars from other institutions to us," Erkan added.