A is correct: Cost-plus deposit pricing encourages banks to determine the costs they incur in labor and management, and materials, among others, in offering each deposit service. Cost-plus pricing typically calls for a bank to charge deposit service fees enough to cover all the costs of providing the service in addition to a small margin for profit.

B is correct: In relationship pricing, the depository institution prices deposits according to the number of services purchased or utilized. The depositor may be given lower fees or have a part of the cost waived if they have used two or more services. Relationship pricing increases the dependency of customers on the institution which promotes greater customer loyalty. This also makes the customers less concerned about the prices of other competing financial institutions.

C is correct: Depository institutions use conditional pricing as a tool to attract the kind of depositors they want to have as customers. In this case, a depository institution sets up a schedule of fees in which the customer pays a low cost or no fee, given that the deposit balance is above some minimum level but is liable to higher charges if the average balance drops below that minimum level. Therefore, the price paid by customers is conditional on how they use their deposit accounts.

Things to Remember

• Deposit pricing methods are important for banks to attract and retain customers by offering competitive pricing structures.
• Cost-plus deposit pricing involves determining the costs incurred in offering each deposit service and adding a margin for profit.
• Relationship pricing ties deposit pricing to the number of services utilized, promoting