‘The Great Deposit Refinance’: Revolutionizing depositor engagement in banking

You’ll find a version of this article and additional insights for growing deposits and attracting customers in the BAI Executive Report: Strategies for customer growth, deposits and retention. 

We’re all thrilled to hear that interest rates are expected to drop in 2024, but that news is a double-edged sword.

The better loan rates become, the more pressure we’ll receive to finance those loans at the lowest cost of funds possible. This will make gathering and retaining deposits even more important. So, how will you overcome the challenges of “The Great Deposit Refinance?”

Understanding ‘The Great Deposit Refinance’

What do I mean by “The Great Deposit Refinance”? Well, the state of the financial markets over the past 12-18 months has caused even the most stubborn depositors to begin questioning if they’re getting the best return on their investments and savings accounts.

For example, take a depositor who owns a CD with a five-year term paying 0.8%. If, after 12 months, the interest rate available on a three-year U.S. Treasury is over 3%, they stand to profit by cashing in the original term deposit, paying the penalty and reinvesting at a higher rate term deposit or even a government bond at the higher rate. They’re essentially refinancing their deposit.

The challenge, as we laid out in our Art of Retention: Don’t Wake Sleepy Depositors blog, is walking the line between driving deposit growth and retaining your existing deposits.

The art of subtle engagement

The first step is identifying depositors who may be stirring from a long hibernation. Increased activity through online and mobile banking, sudden spikes in engagement with your marketing communications, direct interactions in the branch or through the contact center and other behaviors signal that these once-dormant depositors could be looking to move their money. These are the consumers you want to engage and educate—start a dialogue to understand their needs and demonstrate why your institution is the best fit for them.

The second part of this waltz is attracting new depositors. Many banks and credit unions are engaging in a rate war, trying to capture depositors by offering unsustainable rates. While this might lead to some short-term gains, those depositors are likely to move again once they find a better rate somewhere else. Your goal should be similar to how you engage your existing depositors—with personalized communications that put the focus on the depositor’s long-term goals and overall financial health.

This type of personalized service is what builds lifelong relationships and can turn even rate-chasing depositors into loyal account holders. And if you think personalized experiences are reserved exclusively for digital communications and mobile banking, think again.

According to 2023 data from Raddon, in-branch and drive-up interactions are holding their ground—even against the convenience and immediacy of online and mobile banking. But surely that’s only with Baby Boomers and a sliver of Gen X, right? Wrong! Millennials and Gen Z conduct more in-person branch transactions within a typical month than Boomers and Gen X. That means your engagement strategy must be omnichannel if you want to deliver the best experience as account holders move from mobile to online to in person interactions with your organization.

Businesses now expect consumer-like experiences from all their key partners, including their banks. According to The Global Treasurer, integration, data management and innovative services are becoming increasingly important to corporate customers.

Prioritize relationships over transactions to build loyalty

People don’t bank with institutions; they bank with people. Money is a very personal topic, so choosing where to invest it, save it and safeguard it is a more emotional decision than we may realize. An institution offering incredible rates won’t earn or keep depositors if the depositor doesn’t feel comfortable trusting them with their hard-earned savings.

At the risk of sounding like a broken record: relationships are the key to stable, steady, long-term growth and success. Sure, there will always be a small group of depositors who are comfortable constantly moving their money as they chase the best rate from one place to the next. But most consumers either already know or will eventually learn that the best place for their money is with the people who genuinely care about their financial needs and goals—even if they can’t always compete on rates.

One of the best ways to build or maintain relationships is by understanding an account holder’s intent: what do they want and when do they want it? Digital tools and technology can help you monitor for specific behaviors and alert you when an account holder signals intent to make a major purchase (house, car, etc.) or when they start planning for a major life event (retirement, graduation, etc.). Understanding their intentions allows you to further personalize each conversation and show account holders that you’re here to support their long-term financial goals.

As competition increases—and consumer expectations for financial institutions grow—keeping account holders engaged with timely, relevant communications is the key to fueling deposit growth and retention. Banks and credit unions can’t rely on old tactics like sending a single message to every customer and member. Sure, you might get lucky and connect with a few people, but the rest will be confused (maybe even annoyed) that you sent them something unrelated to their needs and goals.

Our industry continues to evolve, and the institutions that are willing and able to adapt will find success while others lag behind. The future of relationship banking demands a nuanced, personalized approach that seeks to understand, educate and guide account holders across every financial milestone. As the old saying goes, “the cream will rise to the top.” It is important to move now so that you do not get left behind. Open banking plays a significant role in shaping these expectations and driving the industry toward delivering enhanced experiences for businesses.

James White is Banking General Manager at Total Expert.