We traditionally think about Money Market accounts and CDs as separate products. When money leaves a CD and lands in Money Market, we often interpret that as a victory for one product and a loss for the other.

Does that explain what is actually happening?

When we look at money flow data we see something different. CD Investors do not always use Money Market the same way other Customers do. They often move money from CDs into Money Market and then later move money from Money Market back into CDs. When viewed as individual transactions these can appear unrelated. When viewed as a system, they begin to look connected.

What if CD Investor Money Market is not really a Money Market account at all?

What if it is actually functioning as a zero-term CD?

The phrase sounds strange at first because CDs and Money Market accounts are supposed to be different products. One involves term commitment. The other emphasizes accessibility. But Customers do not experience the world through product definitions. They experience it through the options available to them. If an Investor repeatedly uses Money Market as a temporary resting place between investment decisions, then the behavioral role of the product begins to look different than the traditional perspective.

A useful analogy is cash sitting on the sidelines waiting for an investment decision. The money has not exited the investment relationship or become transaction money. It may simply be waiting. The Investor retains accessibility while delaying a longer-term commitment. The decision process has not ended. It has been deferred.

This creates an interesting question for management.

Should all Money Market balances be viewed through the same lens?

Customer behavior suggests there may be meaningful differences between balances owned by Investors and balances owned by non-Investors. The same product may be serving different purposes for different populations.

If that is true, the implications extend well beyond product reporting.

Interest rate sensitivity may be different. Response to pricing changes may be different. Movement patterns may be different. Even the interpretation of liquidity and funding characteristics may be different. A balance pool that functions as a waiting room for future CD decisions may not behave the same way as a balance pool being used primarily for general savings.

This is where the idea becomes useful rather than merely interesting.

Most institutions can test the concept immediately. Start by separating Customers into Investors and non-Investors. Then analyze Money Market and Savings balances separately for the Investor population. Follow the money flows. Observe how often balances arrive from CDs. Observe how often they return to CDs. Compare those patterns to Customers who have never owned a CD. No new systems are required. No new data is required. The information already exists in most Financial Institutions.

Even without creating a new product, that simple distinction can improve management information. Instead of looking at a single Money Market portfolio, management gains visibility into potentially different behavioral populations. Cost of funds decisions can be evaluated with greater precision because not every balance may be responding to the same set of choices. ALM discussions can become more informed because the behavioral role of the balances becomes clearer. A pool of Investor Money Market funds that routinely migrates back into CDs may deserve different attention than balances exhibiting very different movement patterns.

Taking this a step further, maybe CD Investor Money Market should be a different product. Give every CD Investor a Money Market account to act as a Zero Term CD.  Think about that for a moment from the Treasury perspective:

Could we split the product into two separate pricing pools?

Could we measure liquidity and decay separately?

Before creating a new account type, before changing pricing structures, before embarking on a major initiative, simply determine whether Investor Money Market behaves differently in your institution. The paper proposes that there may be value in treating Investor Money Market and Savings as a distinct concept, a kind of Zero-Term CD. But whether that idea is useful should be determined by what your own Customers are actually doing.

Sometimes product innovation starts with realizing that Customers have already redefined the product for you.