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Top Three Trends from Raddon’s Annual Deposit Study

March 14, 2018
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The Federal Reserve has raised the Fed Funds rates multiple times over the past two years.  Banks and credit unions have so far resisted raising their deposit rates to match, but are consumers eagerly paying attention, waiting for those rates to shoot up?

In Raddon’s recent study, Deposits Insights: Still Waiting for Rising Rates, we find that unlike the borrowing public who anticipate taking action, depositors remain surprisingly unmotivated by the rate environment.

That’s just one of the findings from this year’s study.  Every year, Raddon performs a “state of the industry” insights study on the depositing and investing habits, expectations, and behaviors of the American consumer public.  Here are three trends we’ve noticed that may impact your plans for 2018:

1. Consumers are not noticeably tracking deposit rates.

Only 7% of Americans are actively tracking interest rates and will move their money to a new institution to get a better interest rate.  That’s basically the same percentage as the 8% who said they were tracking rates in 2007, when the Fed Funds rate was close to 5%, unlike the 1.16% at the time of the survey.  Deposit rates were correspondingly higher as well.

Another 32% watch rates but rarely find a rate that is worth their trouble to switch.  Again, this percentage is basically the same as in 2007.  One would have expected the long-term low-rate environment to have quickened enthusiasm, but that has not happened for America’s depositors.

Even among the largest depositors, those with at least $50,000 in deposits at all institutions, only 16% actively track rates and will move.

2. Consumers require a significant premium to take action.

Simply being a few hundredths of a percent higher than the competition will not ensure new funds. 

First, 41% of consumers will not move their funds to a new institution for any price, implying that they are placing higher value on non-price attributes like convenience, service quality, availability, or technology.

Second, only 11% will move for anything less than a 1% increase.  Notably, nearly double that number (19%) would move to a new account at the same institution, showing the risk of cannibalization in the search for new funding.

Financial institutions could consider a strategy of special new products to attract new dollars and retain at-risk money, while maintaining their floor rates for those customers who value your institution for reasons beyond price.

3. Consumers save for a variety of reasons.

This point may seem like a no-brainer, but increasingly, it is clear that while the community banking and credit union industries have done well in understanding consumer rationale for borrowing, we do not have the same level of comfort for saving.

For example, we know that a customer does not want to get a mortgage: they want to buy a home.  No one seeks out an auto loan: they want to buy a car.  We have been quite effective in tailoring our message to those desires.

Consumers are clear about WHY they want to save, and none of those reasons have to do with “opening a deposit product.”  39% of consumers want extra funds for emergency purposes, a percentage that jumps to 44% of Millennials.  26% want money for retirement, but that applies to 32% of Baby Boomers. 

Each of these messages would be very different, even if the product might be the same.  For the former, an appropriate message might describe availability whenever the customer needs those funds and tools to help build that rainy-day fund.  For the latter, discuss security and soundness and possible tax advantages.

Put another way, what is a “certificate”?  Besides being what a third-grader gets by finishing 6th in her grade school’s Field Day sack race?  What is a “money market” account?  These days, very few money market accounts actually invest that money in the market to return higher rates.  Most are just high-rate savings accounts, and that’s fine!  A Savings Account makes sense – it’s an account to build savings.  Do your other deposit products make sense?  Can you explain them clearly?  Do those products meet your customers’ needs and help them achieve their goals?

Summary: Consumers are still waiting for higher rates to come.   They have savings objectives, but those objectives can vary widely.  Marketing products to those needs can help drive demand without relying on rate.