By: Jan Trifts and Marcy Scanlin, Strategic Advisors

As the financial strain of shelter-in-place mandates wears on consumers, Raddon experts expect to see two divergent consumer deposit behaviors that financial institutions will need to address soon. First, some consumers will be looking for liquidity as they need immediate access to their money for living expenses. Second, some will be looking for longer-term options as a flight to safety as financial markets fluctuate.

These are some actions you can take to help manage these behaviors and the effect they may have on your institution.  

Deposit Liquidity

• Create a reverse-tier savings account – an account that offers a significantly higher rate on deposits up to a maximum of $1,000. For example, one institution is offering a rate of 6 percent on balances up to $1,000, and then the rate drops to 0.25 percent on all remaining balances. These reverse-tier savings accounts not only help consumers save more, but also help foster good savings habits and provide emergency cash among consumers struggling to create a safety net
• Create a rewards checking account – for customers and members meeting certain criteria, reward them with higher-than-normal APR, cash back on debit purchases or the ability to earn points for a gift program. Criteria can include a higher rate on balances up to $25,000, requiring a certain number of debit card transactions per month, using e-statements or having direct deposit. Another consideration is the length of membership to highlight the value of loyal accountholders. According to the 2019 Raddon study, “Building a Better Product,” the most preferred features of a checking account include: no monthly fee, having a branch within a five-minute drive, high interest on the first $10,000 in balance, cash back on a debit card, and rewards points
• Expand the number of tiers on your high-rate savings or money market accounts –   provide higher interest rates for accountholders while limiting the overall impact of your cost of funds
• Institute relationship pricing – offer a higher interest rate on money market accounts if the accountholder has at least $5,000 in core deposits to strengthen relationships and recognize loyalty. (This also can address longer-term deposits by offering a higher interest rate on certificates of deposit)
• Support local businesses by providing financial incentives – accountholders who increase their debit or credit card transactions with local restaurants and other small businesses would receive an incentive. This is a win/win situation for your retail and small business accountholders, providing additional interchange income for the institution and boosting much-needed sales for local businesses

Longer-Term Deposits

• Show appreciation – have the CEO or other senior level managers reach out to top depositors to thank them for their business and reassure them of the strength of the institution. Remind them that their funds are insured by the FDIC and NCUA up to specific amounts
• Offer a certificate of deposit (CD) incentive – allow one opportunity to increase the rate prior to the maturity date. This provides incentive for accountholders to make a longer-term commitment knowing that, if rates rise, they will be able to benefit from that increase, and it also limits the rate increase risk to the institution
• Offer no-penalty CDs – appeal to those accountholders who are concerned about locking their funds for a longer maturity to get a higher return. Removing the penalty for early withdrawal provides peace of mind in case funds are needed sooner than expected
• Provide a renewal incentive – actively managing the CD renewal process will allow you to offer rate specials to the more actively engaged accountholders with a stronger overall relationship with the institution. By reaching out in advance of renewal, you can further strengthen the relationship and keep your best-rate products with your best customers and members

Deposit Retention

Deposit retention has never been more important and needs to be an ongoing focus. In the 2019 Raddon study, “Deposit Insights: Rate-Seeking Roller Coaster,” we found that 69 percent of consumers would move their savings to a new institution if the rate difference was high enough.

Consider these strategies:

• Monitor households for declines in deposit balances – reach out to those with balances of $25,000 or higher with special offers. Use your transaction data to determine the destination of the funds. Sometimes the funds are for large purchases such as the down payment for a house. But other times, it could indicate the accountholder may be moving to a new depository institution or an investment house. Proactively reaching out with an enticing offer, such as deposit products or wealth management, can help win back dollars
• Develop a list of triggers to monitor for deposit attrition signals – key indicators could include a decline in deposit balances, closing of deposit accounts, change of address or dropping direct deposit. Contact those accountholders with special offers. Thanks to digital banking, distance from a branch is not as critical to deposit gathering as it once was; engaging with accountholders who have moved can keep the relationship
• Identify customers and members for a recapture marketing campaign – focus on those who previously were tagged in your marketing customer information file (MCIF) or database as having a high balance but are no longer in this category
• Provide education for accountholders not using digital tools – show them how to download the mobile app, sign up for online banking and deposit a check through remote deposit capture. By providing educational opportunities through your website, marketing communications and employee interaction, you will be able to help accountholders understand how they are able to access their funds digitally and reduce traffic at your branch and drive-through locations

By taking a proactive approach with product offerings and communication strategy, financial institutions can not only reassure accountholders during this time of uncertainty, but they can strengthen relationships and create a more loyal customer or member base.