How to control your interest expenses and manage your liquidity moving forward.

Starting with the Fed-rate cut today, and for the next 18-24 months, expect deposit rates to decline gradually and consistently. There are two major areas you need to focus on moving forward: controlling interest expense and managing your liquidity. Each of these functions is critical to your financial stability during this rate-reduction period and beyond.

The most efficient methodology for controlling interest expenses is rate optimization. This is simply done by using the Deposits Dynamics system to establish your Optimal Pricing Position of each deposit product. Your optimal pricing position is your point of highest efficiency, meaning that you will maintain the status que of your balances at the lowest level of interest expense.

The other critical function during the rate-reduction cycle that started today is acquisition of balances. When rates decline, Net Interest Margin (NIM) shrinks, which restricts your ability to increase deposit rates. Thus, you should use the Scientifically Predictable model to acquire new balances by using market return rather than interest rates. Thus, you can increase your liquidity without increasing interest expense.

By using Deposits Dynamics and Scientifically Predictable, you will maintain your current balances at the lowest level of interest expense and acquire new balances without increasing your interest expense. Moreover, since both models are backed by a published scientific study , you can have very high confidence that these two scientific models will allow you to improve your institution’s financials.