COOLIDGE BANK & TRUST COMPANY

By: Group No. 02
Abhijeet Nayak (10P002)
Amar Rajagopal (10P007)
Nipun Goyal (10P035)
Pratyaksh Mehra (10P039)
Saksham Agarwal (10P047)

About the Company
• Established in Dec 1960 by 12 merchants &
businessmen
• Headed by Mr. Milton Adess with no prior
financial exposure - who considered money to
be a product which has to be sold at the
lowest possible price and the best possible
quality
• At end of 4 yrs their total deposits - $10.2 mn
& after “No Service Charge” scheme it grew
manifolds to $61.2 mn by 1970

Innovations @ Coolidge
We Close
Sundays

X’Mas
Interest

We give
business a
break

We’re
Loners

FNSCPCA

We pick up
& Deliver

No money
down

We love
MBA’s

What’s the
new Gen
coming to

Coolidge
bank comes
to Kendall

We give you
credit for
being
successful

Growth
Gaurantee

Case Analysis
• Coolidge Bank is a young and innovative
commercial bank in the Boston area
• Debating introduction of NOW accounts
offered by both thrift banks & commercial
banks
• With a substantial number of thrift banks
offering NOW accounts and the concept
starting to grow among commercial banks in
Massachusetts, Coolidge Bank has to decide
its strategy

Introduction to ‘NOW’ Account






Withdrawal by negotiable instrument, i.e. Check
Interest received @ 5%
Per transaction cost to the bank approx 10cents
100% deposits can be re-invested
No overdraft facility available
Any number of transactions possible
Offered by commercial banks & other NBFC’s

Note: Keeping a NOW account will not improve our
profits but not keeping a NOW account shall only
lead to huge losses.

Reasons to introduce NOW account



Gains
Prevent migration of our present accounts to
competitor’s ‘NOW’ accounts
Earn interest on 15% more deposits in hand
Greater ease of usage. Can be traded
No cap on number of transactions

Loss
• Interest out-flow on deposits
• Substantial operating costs

Reasons to introduce NOW account
(contd…)

• Many a/c holders changing to other banks due to
non availability of NOW a/c with Coolidge
• Most Commercial Banks were not advertising NOW
accounts
• Primary purpose was to maintain the deposits in
another form
Year
Interest on reinvestment

1972
6210930

1973
7952215

Interest paid on deposits
Demand Deposits
Time Deposits
Loans

1790298
57722105
36186015
78335088

2471277
60944902
52576676
89803957

Product offered
• Interest Provided 5%
• No charges up to 10 transactions per month

• Transaction Charges as per following details:
– Balance less than 500 : 20cents
– Balance more than 500 : 10 cents for first 10 nos
15 cents for further nos

Cost Analysis (contd…)
% of changing

Balance
20.00 0-250$
40.00 250-1000$
60.00 >1000$

%of changing

Checking Account Balance Situation-1 (Cost Incurred due to Interest Outflow) Checking Account
% of changing

Balance
20.00 0-250$
40.00 250-1000$
60.00 >1000$

Deposits
4191216.62
9356448.37
15967945.01

Deposits transferred
838243.32
3742579.35
9580767.01
Total

Balance
10.00 0-250$
25.00 250-1000$
50.00 >1000$

Checking Account Balance Situation-2 (Cost Incurred due to Interest Outflow) Checking Ac
interest to be paid
% of changing
42974.64
191872.67
491181.94
726029.25

Balance
10.00 0-250$
25.00 250-1000$
50.00 >1000$

Deposits
4191216.62
9356448.37
15967945.01

Savings Account Balance Situation-1 (Cost Incurred due to Interest Outflow) Savings Account

Savings Account Balance Situation-2 (Cost Incurred due to Interest Outflow) Savings Accou

Checking Account Balance Situation-1 (If funds migrated to other banks) Checking Account

Checking Balance Situation Case-2 (If funds migratedto other banks) Checking Account

% of changing

Balance
20.00 0-250$
40.00 250-1000$
60.00 >1000$

Deposits
4191216.62
9356448.37
15967945.01

Deposits transferred
838243.32
3742579.35
9580767.01
Total

interest income foregone
% of changing
83193.62
371441.96
950867.98
1405503.56

Savings Account Balance Situation-1 (If funds migrated to other banks) Savings Account
% of changing

Balance
20.00 0-250$
40.00 250-1000$
60.00 >1000$

Deposits
272451.78
18145288.55
8827437.67

Deposits transferred
54490.36
7258115.42
5296462.60

interest income foregone
% of changing
5408.04
720350.42
525661.12
1251419.57

Checking Account Balance Situation-1 (If funds migrated to NOW Account)
Balance
20.00 0-250$
40.00 250-1000$
60.00 >1000$

Deposits
4191216.62
9356448.37
15967945.01

Deposits
4191216.62
9356448.37
15967945.01

Savings Balance Situation Case-2 (If funds migratedto other banks) Savings Account

Total

% of changing

Balance
10.00 0-250$
25.00 250-1000$
50.00 >1000$

Balance
10.00 0-250$
25.00 250-1000$
50.00 >1000$

Deposits
272451.78
18145288.55
8827437.67

Checking Balance Situation Case-2 (If funds migratedto NOW account)

Deposits transferred Extra funds avlbl for reinvestment
extra interest income % of changing
838243.32
125736.50
12479.04
3742579.35
561386.90
55716.29
9580767.01
1437115.05
142630.20
Total
1405503.56
Grand Total
4062426.70
Net Gain

3336397.45

Balance
10.00 0-250$
25.00 250-1000$
50.00 >1000$

Deposits
4191216.62
9356448.37
15967945.01

Competitor Analysis
Coolidge Bank Offering

Commerci
al Banks

Mutual
Savings Banks

Savings & Loans
Co-op Banks

Interest Rate paid

5%

(=)

(=)

(=)

Basis of calculation of
interest rates
Frequency of
compounding

Day of Deposit to
Withdrawal

(=)

(=)

(=)

Daily

(+)

(+)

(+)

20 Cents ($500 or less
accounts)

(-)

(-)

(-)

(+)

(+)

(+)

(=)

(-)

(-)

Charge per Draft

10 Cents for <= 10
Drafts($1000 or more
accounts)
15 Cents for > 10 Drafts
($1000 or more accounts)

Frequency of
Compounding

Interest

4%
5%

Quarterly
(Effective Interest
Rate)
1.0406
1.05109

Monthly (Effective
Interest Rate)

Daily(Effective Interest
Rate)

1.0407
1.05116

1.408
1.0512

Trends
• Data suggests mass switching to NOW a/c in future
• Operational costs for NOW a/c transactions to fall
gradually due to restructuring
• More than 95% of Check-in a/c holders have savings
a/c as well
• As people are not averse to having more than one
type of a/c they will shift to NOW as well
• Major reason for a/c shifting prior to NOW was
convenience
• Customers moving towards companies offering
more convenience & flexibility

Thank You!!!