Seven Steps to Deposit Retention
A major topic of conversation at the September 2018 Performance Analytics workshops was the need for financial institutions to focus on deposit retention. Loan growth (9.9 percent) continues to outpace deposit growth (5.8 percent) as loan-to-deposit ratios increase. The average loan-to-deposit ratio is now in the mid-80s (a number of financial institutions exceed 100 percent).
Liquid account balances (checking, savings and money market accounts) are at an all-time high, totaling $11.3 trillion, up from only $2.3 trillion in 2000. Retaining these liquid dollars in checking, savings and MMAs is critical because forecasters project increases to deposit rates will continue throughout 2018 and beyond.
Among participants in the Raddon Performance Analytics program, the proportion of the mix of core deposits has increased from 62 percent to 74 percent over the eight years while that of CDs has declined from 28 percent to 17 percent. Because liquid deposits are less sensitive to rate, they have traditionally been more likely than other types to stay at an institution. However, there are few barriers to move, and according to our latest Raddon Research Insights analysis, 54 percent of consumers with at least $50,000 in deposits have liquid dollars ready to use in better opportunities. Those liquid balances average $108,000 for each household.
Clearly, we need strategies to keep these liquid dollars at our institutions.
Therefore, after having talked with institutions across the country, I present “Jan’s Seven Tactics to Retain Deposits.” This is only the first batch; in future posts, I’ll provide even more ideas you could consider.
- Develop a VP of Deposits position at the institution. Although many institutions have executive positions devoted to lending, very few have an executive dedicated to the funding side of the business. Sometimes deposits fall under Marketing, sometimes under Finance. One institution we saw even had deposits under IT. Combining efforts to attract, retain, and price deposit funds under one position can give a significant boost to efficient product management.
- Actively manage the certificate renewal process. Although some certificates are “hot money,” primed to attract consumers who seek the best rate available, many certificate holders are less rate sensitive. By targeting the first group, you can afford to manage the second to a lower cost of funds. Review the entire relationship of the holders of maturing CD to determine the level of incentive needed to retain those dollars. Depending on your funding needs, you could have available an aggressive new rate, an unpublicized rate or just your standard rate. Call the key renewing holders to thank them for their business and discuss new CD offerings.
- Redesign the standard notification about maturing CDs to congratulate CD holders on the completion of their savings goal and to mention current CD specials. Certificate holders have fewer interactions with an institution than do owners of any other product. Use those communications wisely to demonstrate value beyond simply the interest paid.
- Have an executive, possibly even the CEO, call top depositors to thank them for their business. Do not limit calls to certificate holders; instead, reach out to liquid depositors with large balances who are waiting for an opportunity to move. Building a personal relationship with top depositors can help ensure their loyalty and may diminish their rate sensitivity.
- Invite top depositors to a thank-you lunch, dinner or “wine and dine” event with the CEO. Such events can also help cross-sell these depositors into your wealth management practice. Investment practices at banks and credit unions generally do not cannibalize deposit balances because consumers like to have deposit and investment products simultaneously. If they have both types at an organization, they are significantly less likely to leave.
- Provide flexibility to the frontline staff to allow rate matching up to some limit (e.g., 20 basis points). Pricing slightly below the market may make sense financially but may also risk losing the most rate-sensitive depositors. Giving staff the flexibility to match market rates can help you retain rate-sensitive depositors without requiring added interest expense for less rate-sensitive dollars.
- Add higher tiers to existing money market accounts to encourage additional new money deposits – consider $100K, $250K and $500K tiers. While additional, separate products are ideal for reducing cannibalization and repricing, they can sometimes be confusing to customers and staff. Adding high new tiers to an existing product can encourage customers to add balances while limiting overall exposure to repricing because only a small percentage of existing funds would fall into the new tiers.
I hope some of these ideas will work for your institution. Please talk with a Raddon Strategic Advisor for further ideas and look for seven more ideas soon!