Two things are landing on community bank desks at the same time this fall. The Fed raised rates in the third quarter, its first increase since 2023. And budgeting season is coming, with 2027 plans about to get underway.

Both lead to the same question at ALCO: what will our deposit costs do next?

I'm not going to pretend anyone knows. My crystal ball is no better than yours. But every bank already has one piece of evidence worth a closer look: what its own deposits did the last time around.

Previously on…

From early 2022 to mid 2023 the Fed took its target from 0.25% to 5.50%. It held there for about a year, then cut to 3.75% by the start of 2026. That's a full rise and fall, recent enough that most of the people who priced your deposits then are still pricing them now.

Every quarter of it is in your bank's reported history: what it paid on transaction accounts, savings and money market accounts, and time deposits. Put those next to Fed funds and you can see how far each one followed, and how long it took. ALM models call these beta and lag, and your model makes an assumption about both. Past performance doesn't calculate them for you, but it does imply them. It's worth knowing whether the two are consistent.

One scene, three characters

Let's look at how it played out at one bank, Iowa State Savings Bank in Creston, Iowa, where each deposit type played its part differently.

Its savings and money market cost followed about a fifth of the Fed's move on the way up, and about a fifth on the way down. Steady in both directions.

Time deposits lag by design, and the lag here was long. Their cost followed about 60% of the Fed's move on the way up, then kept climbing for another year after the Fed stopped, peaking at 4.01% at the end of 2024. By mid 2026 the Fed had come down 175 basis points; time deposit cost had come down 27.

Transaction accounts barely moved either way.

Three different behaviors at Iowa State. Your deposits have a history too. Does each beta in your model line up with it?

Why it moved is a separate question

The data shows what changed, not why. Some of Iowa State's time deposit story could be the Fed. Some could be the bank's own decisions: a CD special to fund loans, matching a competitor, letting some balances go. The market pushes, but management sets the rate.

As you approach budgeting season, your 2027 plan will ask something of your deposits: fund loan growth, hold on to balances, keep funding costs tight to support margin. Those goals will shape pricing decisions right alongside whatever the Fed does next. The last cycle shows what happened when both were in play.

Questions for your next ALCO meeting

• How does the beta in our ALM model compare with what the last cycle implies, for each deposit type?

• Did our costs keep rising after the Fed stopped? For how long?

• How much of the Fed's cuts made it into our deposit costs before this hike?

• What does the 2027 budget ask of our deposits, and how will that shape pricing alongside the Fed's moves?

• Looking back, which moves in our costs line up with the Fed, and which look more like our own decisions?

Look at your own bank

Here's a page that walks any bank through the last cycle: the rise, the plateau, the cuts, and the full cycle in one view, for each deposit type. It opens on Iowa State. Search for your own bank and see what your history says before you settle on what comes next.