Finding The Sweet Spots With Deposit Rates

Ann Jones August 13th, 2018

As we visit with Dashboard clients, we’re hearing plenty of buzz about the need to further raise deposit rates to remain competitive and meet customer expectations.

With the likes of Sallie Mae and American Express promoting no-minimum-balance savings accounts at APYs at 1.75% or above, consumers may be paying more attention to their yields. And watch out: 20 percent of consumers will move their funds elsewhere for an increase of 110 bps, according to new research by Raddon.

Raddon’s guidance to bankers is that it takes a rate increase of 82 bps to move your existing customers into one of your other deposit products. And to attract new money from outside the institution, 96 bps over the competition is the sweet spot.

Raddon’s guidance is helpful, but as you work to identify the sweet spots for your own deposit products, you’ll need to rely on multiple sources of financial and competitive market data.

Financial Data

Your Dashboard will help you bring together key financial metrics, trends, and projections, and keep you agile in your pricing strategies. For example, every business day you should be tracking liquidity, deposits, loans, and maturities.

Understanding this Dashboard data can help you determine whether your institution needs to grow deposit balances or whether you have room to let some high-cost deposits flow out of the bank.  Once that decision is made, you can turn to your competitive market data to help set target deposit rates.

I thought it might be helpful to have this list available to print and share within your organization. Feel free to use this as a great resource as you look for the sweet spot with your deposit rates.

 Competitive Market Data

It’s more important than ever to have business intelligence on your competitors, as competition for deposits is expected to increase over the next year.

According to Promontory Interfinancial Network’s Bank Executive Business Outlook Survey for 1Q 2018, 95 percent of respondents from larger community banks and 87 percent of respondents from smaller community banks believe there is likely to be increased competition for deposits.

Some of our clients say that in the absence of offering the market’s highest rates on deposit products, they will be doing more to promote soft benefits, like personal relationships, exceptional experiences, local branch locations, or their specific niche.

At some point, however, money talks. Your account holders may not be the type to open an account online with Goldman Sachs or CIBC Bank, but they might consider walking down the street to another community bank for a rate increase.

It’s also important to know what kinds of new products your competition is using to retain and attract customers. Do they have an adjustable rate CD, a.k.a. bump-rate CD? Do they have a high-yield savings account with free checks and unlimited check-writing? Yes, believe it or not, checks are a draw – I’m not just saying this because I work for Deluxe!

To learn more ways to make your deposit products attractive, read the sections on “Positioning High-Rate Accounts” and “Making CDs Cool Again” in this article called “How Banks and Credit Unions Can Survive Rising Interest Rates.”

We’re Here to Help

Please contact me or any member of the Dashboard team if you want to discuss your deposit-pricing strategies. We’ve been in the thick of it ourselves, so we understand the challenges. Maybe we can bring some fresh perspective.

This content is accurate at the time of publication and may not be updated.