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Whom to Target for Deposits?

July 18, 2019
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Are you looking for deposits in all the wrong places? In today’s challenging funding climate, most institutions are looking to maintain and grow deposits to help them manage the cost of funds in a rising rate environment.

In order to be successful, an institution needs to know who its members or customers are. Why? Different types of consumers use different types of deposit products. It’s that simple. Or at least it seems simple thanks to the more than 30 years of research Raddon has done for you. We go beyond researching the traditional generational segments (Traditionalists, Boomers and so on) and use certain age groupings along with an income component. We call these groupings consumer segments, and they are far more valuable and telling than using age alone to determine behaviors and preferences.

For example, think of a Baby Boomer consumer. Overall, older consumers are more likely to bring you deposits. But when we factor in the income component, baby boomer households with less than $50,000 in annual income are about as likely as the average household to have a certificate (15 percent). Baby Boomer households that make more than $50,000 in annual income are much more likely to have a certificate (23 percent). A Baby Boomer household with an even higher income (more than $125,000) is even more likely to use a CD product (29 percent).

The chart below will help you understand the different consumer segments.

Every year, Raddon surveys consumers nationwide about their financial behavior and expectations. This data, compiled from more than 3,600 responses, gives us a picture of how these various segments use banking products and delivery channels differently, which can help our partner banks and credit unions target the right consumers for the right products.

To help clarify the differences between segments, we use indices that easily display above or below average usage. For example, 18.3 percent of households have a money market account, so that gets an index of 100. Any segment with money market usage higher than 18.3 percent gets an index above 100, and any segment with fewer households with a money market account has an index below 100.

In this case, 37.5 percent of Upscale households have a money market account. That’s more than double the average usage, and their index is 205, meaning that Upscale households are extraordinary money market targets. On the flip side, only 6.6 percent of Fee-Driven households have a money market account, giving them an index of 36. As a result, an institution looking for money market candidates would likely avoid targeting Fee-Driven households.

Below are some key deposit products and the consumer segments that are more likely to use those products in that indexed format:

The best targets for deposits, overall, are Middle-Income Depositors and Upscale consumers. They not only use more types of deposit products, but when they do use them, they carry higher balances, as shown on the chart below.

When looking for deposits for Middle Market consumers, you should offer savings products and checking products and consider strategies to get them to carry higher balances, such as a rewards/relationship checking with a higher rate.

When looking for deposits from Credit-Driven consumers, offer money market, checking and savings. But consider this: Over 90 percent of these younger segments are looking to reach savings goals. Fee-Driven – or younger, lower-earning consumers – primarily use checking as their only deposit product. When we asked these consumers what their top savings goals were, 47 percent said to have extra funds for emergencies, followed by having extra funds to spend as they wished and then take a vacation. When we asked Credit-Driven consumers the same question, the top three reasons were the same, although saving for a vacation edged out emergencies ever so slightly. This is probably because they have a little more saved, having a higher income than their Fee-Driven counterparts. When marketing deposit products to these consumers, consider messaging around these savings goals.

Middle Market and Upscale consumers’ top priority for saving is not a surprise: to have funds to retire. But the Middle Market consumer also has a strong need to pay down debts, make home improvements and save for emergencies, vacations and money to spend on a rainy day. By far, Middle Market consumers have the most savings goals to achieve.  Retirement and emergency funds were also top priorities for the Low- and Middle-Income households, the eldest two segments of the group.

Less than 5 percent of Fee-Driven households and only 13.5 percent of Credit-Driven households currently use a CD product. As a test, we asked these consumers if they would be interested in a “goal-savings product” which, by locking in funds for a specific term, would enable consumers to earn a rate. As much as 52 percent of Credit-Driven households were either extremely interested or interested in such a product, along with 41 percent of Middle Market households. Calling the product a CD or certificate seems to be a sales barrier.

The chart above shows the average deposit balances of each type of consumer household. What portion of these balances does your institution have? You might have the balances for some and a lot of opportunity to grow share of wallet in others. On average, a typical credit union has about one-third of its members’ deposits. If an institution has its fair share, it has to be looking to attract more members or customers. If not, there’s opportunity for organic growth.