It’s Time to Disrupt the Traditional Deposit Strategy

Thursday, September 29, 2022  |  Jenny Armistead, Strategic Advisor

When it comes to targeting and growing deposits with millennials, why do community banks and credit unions continue to deploy the “same old, same old” approach of launching a certificate of deposit (CD) special or adjusting their money market tier rates? Targeting a millennial with the same CD special campaign that worked for their Aunt Carol 20 years ago will not work. Institutions that are serious about growing deposits with younger accountholders will need to rethink and innovate their deposit strategy. In this article, we will explore the behaviors and attitudes that millennial accountholders have regarding deposit accounts and their needs and expectations around savings and identify institutions that are disrupting the traditional deposit marketing strategy. 


Isn’t a CD Something I Used to Listen to Music in the 90s?

For decades, traditional banks and credit unions have built and targeted their higher-rate savings products to the baby boomer generation. This was a logical strategy because they were the largest consumer segment with enough accumulated wealth to be able to deposit large balances. The oldest millennials turn 43 this year, and not only do they now represent the largest population segment, but they are also at the point in their lives where they have enough wealth to start getting serious about saving for their future. The problem is that many community banks and credit unions struggle to understand the major generational differences between millennials and baby boomers and the current competitive landscape when it comes to growing deposits with millennials. 

 

Why Targeting Younger Depositors is Important

Some of you might be thinking that it just makes more sense to target older consumers because they have more wealth. While this is true, according to a 2021 Business Insider article, “with a net worth of $91,000, the typical 40-year-old head of household millennial is only 80 percent as wealthy as their parents were at their age.” Targeting only older consumers for deposits is a short-sighted strategy. This wealth gap between millennials and older generations is largely due to stagnant wages, increasing cost of living and much higher amounts of debt from mortgages and student loans. Here, we can see the differences in wealth at age 40 for baby boomers, Gen Xers and millennials. 

 

Generational Wealth Differences at Age 40

Source: Federal Reserve data from 1989 and 2019 Surveys of Consumer Finances

 

Student Loan Forgiveness

One reason why it now makes sense for financial institutions to target younger depositors is because, within the next month, the Department of Education will be releasing a formal application for the one-time student loan forgiveness initiative. According to a recent Forbes article, “Forty million federal student loan borrowers across all 50 states will get at least some portion of their loan balances forgiven – half will have their balances completely eliminated.” This will help to alleviate some of that debt burden for millennials and allow them to put more money into savings. 

 

The Great Wealth Transfer

Another key reason to target younger depositors is because an estimated range of $30 trillion to $70 trillion in wealth will transfer from baby boomers to their younger Gen X and millennial offspring over the next two-plus decades. Institutions that take a proactive approach to managing those next-of-kin relationships and engaging millennials over the next 20 years will successfully retain and grow deposits for future growth and sustainability. 

 

Most Institutions Deposits Are Controlled by Older Consumers

Looking at the average of 300+ institutions that participated in the March 31, 2022, Raddon Performance Analytics program, we can see 39 percent of households represent baby boomers (age 58-76) and traditionalists (age 77+), who collectively own 69 percent of the deposit balances. Millennials represent 33 percent of the households and only own 12 percent of the deposit balances. Knowing that institutions will start losing these older accountholders over the next 20+ years makes it critical to focus now on targeting younger consumers.

Source: Raddon Performance Analytics, March 31,2022

 

Millennial Needs and Expectations for Savings

If community banks and credit unions have the majority of their deposits sitting with accountholders that are 58 years old or older, how can they increase the deposit share of wallet with millennials? It all starts with understanding the unique behaviors and needs of this generation. Let’s go back to Marketing 101 and the four Ps:

Purpose: Instead of Product, focus on the Purpose of your savings accounts. Why do they need this account and how will it make their lives better and/or easier? Saying that I can open a 12-month CD account doesn’t tell me how your savings account is any different from the thousands of others or tell me how it will solve a problem for me. Below are two examples of how institutions can focus their savings account content on the purpose or the problem that it solves. The image on the left is from Ally Bank’s mobile site, which describes how the accountholder can customize their savings according to their unique goals. The image on the right is an Instagram post by SoFi that clearly communicates the problem that many millennials have today: not having enough savings for a down payment on a house.

 

Price: As for Price, did you know that millennials are rate-sensitive? Even more so than older generations. According to the 2020 Raddon Research Insights study, “Deposit Insights: Rise of the Millennial Saver,” 46 percent of millennials actively track rates and are willing to move money to get a better rate, compared to only 34 percent of Gen Xers and only 10 percent of baby boomers. This increased rate-sensitivity is because millennials have never experienced a “high-rate” environment in their lives. Speaking of price, online banks have an advantage in that through their efficiencies they can offer more competitive rates. Here is a look at deposit rates as of August 25, 2022, for larger banks versus online institutions.

 

Deposit Rates: Mega-Banks 0.01% vs. Online Banks 1.50%+ and Rising

Source: Bank websites as-of 8/25/2022 and 9/14/2022  

 

Place and Promotion: Both need a mobile-first strategy. One of the major benefits of online savings accounts is the level of convenience they offer in terms of frictionless account opening capabilities and an overall enhanced mobile app experience – which is super important for millennials. According to a 2021 Raddon Research Insights study, “Payments and Delivery Insights: The Changes Continue,” 93 percent of millennial respondents stated that they use mobile banking, up from 71 percent in 2016. 

 

The promotion strategy also needs to be digitally focused. Millennials tend to search and/or shop online for financial information, products and services. According to a 2020 Raddon Research Insights study, 50 percent of millennials shopped for a deposit account online in 2018–2020 and 21 percent opened an online savings account. Among those who shopped online, 76 percent shopped for a checking account and 62 percent shopped for a savings account; only 18 percent shopped for a CD and 12 percent for a money market account . A quick Google search for “best savings accounts” resulted in the following examples of institutions currently using Google Ads to promote their savings accounts. Note that two of the three Google Ads highlight that their savings accounts will earn the accountholder X-times the national average.

 

Savings Account Features That Millennials Want

Beyond convenience, rate, and personalization, millennials are looking for savings accounts that include the following:

  • Low or no minimum deposit requirement
    "Don’t make me go through a lot of hoops in order to start saving."
  • No fees or withdrawal penalties
    "I shouldn’t be penalized to access my own money."
  • 24/7 customer service, live chat 
    "Can I get immediate help if I have a question about my account?"
  • Automated Savings Tools
    "Help me save without even having to think about it."

Ally’s Online Savings Account offers three automated savings tools. Using AI automation and data analytics on their accountholders, they do the saving for them, offering the highest level of convenience.

 

Deposit Strategy Disruption Is Less About Product Design and More About Innovative Promotion

Financial institutions that are looking to grow deposits with younger accountholders should focus less on redesigning their savings products and more on disrupting traditional marketing strategies. Millennials are at the stage in their financial life where saving is becoming more important, just like their parents. But unlike their parents, they probably won’t just walk into your branch to ask about opening a CD account. They will begin the process of researching and evaluating savings options online, and once they decide they will want to open the account online using their mobile phones. They will choose the savings account that offers a competitive rate and an ultra-personalized mobile experience that will do the work for them and which doesn’t require many hoops or fees to save for their unique goals. Institutions that utilize a digital-first marketing strategy will be more effective at reaching the right audience at the right time. For example, implementing a retargeting strategy to those consumers who have recently visited your deposits and/or rates pages on your website will help you succeed at getting your message to those that are actively searching. When it comes to your message, remember to focus less on the product and more on the purpose of the account or the problem that it solves for the accountholder. 

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