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Seven More Steps to Deposit Retention

November 28, 2018
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So many Raddon Report readers appreciated and shared my previous list of steps to retain deposits that I have created a new list of seven tactics and strategies. I hope you will find value in these ideas as well.

  1. Create additional money market accounts (MMAs) with different minimum balance requirements to give depositors a higher interest rate. For example, one account might offer a 1 percent rate with a $25,000 minimum balance. After your growth in that product has plateaued, offer your depositors a new 1.5 percent account with a $50,000 minimum. Later, increase the rate of the shorter-term product and market that one again. Rotate through these account offerings, marketing only one at a time to reduce confusion.
     
  2. Require a component of new money for depositors to receive a higher level of interest on an MMA or CD. Creating a new attractive product can be harmful to your funding costs if all the dollars in the new product are simply existing funds that have migrated from a lower-rate product. By adding a new money component, institutions can limit cannibalization. Consumers don’t particularly like these requirements, so entice them with a bonus: Ask them to bring in $25,000 in money from somewhere else and earn an extra 0.25 percent or bring in $50,000 and earn an extra 0.50 percent.
     
  3. Pay a higher rate on a CD or MMA if depositors keep a minimum of $5,000 in checking. A checking account with $5,000 generally earns little to no interest, allowing the institution room to offer a higher rate on other products. Ideally, the checking account would be active, and the earnings from interchange and other fees could offset the additional expense.
     
  4. Create a “Loyalty CD” for which customers receive a higher rate if they add dollars to the certificate at maturity. Certificate holders generally fall into two categories: those who pay attention to rate and move their money to the best provider at maturity and those who let the certificate renew indefinitely. This program targets members of the first group, encouraging them to keep their hot money with you by giving them an additional boost other institutions can’t beat.
     
  5. Offer bump-rate, rising-rate and no-penalty CDs, rotating these offerings throughout the year. Raddon research shows that over 70 percent of consumers find value in these options, especially high depositors (those consumers with at least $50,000 in household deposits) (see Figure 1). Forty-seven percent of high depositors would prefer a two-year certificate with a bump to a one-year certificate without a bump, whereas only 28 percent would prefer the shorter-term instrument. These features can help attract funds and allow the institution the possibility of lengthening terms in a rising-rate environment.

  6. Monitor households for declines in deposit balances of $25,000 or higher and reach out to them with special offers. Use your transaction data to determine the destination of the funds. Sometimes the funds are for a large purchase, like the down payment for a house, but at other times, they are moving to a new depository institution or an investment house. Contacting those consumers with an enticing offer, either in deposits or wealth management, depending on the destination, can help win back dollars.
     
  7. Develop a list of triggers to monitor for signals of deposit attrition. A few key indicators are a decline in deposit balances, the closing of deposit accounts, a change of address and a dropped direct deposit. Contact those customers with a special offer. Thanks to mobile banking, distance from a branch is not as critical to deposit gathering as it once was; engaging with customers who have moved can keep the relationship.

I hope these seven tactics help you. I’ll have a few more by the end of the year, so stay tuned.