How to Retain Deposits and Gather More

Consumers think about money almost every day. How much is in my bank account? Do I have enough to pay my bills? What's left over for discretionary spending? Am I getting the best return on my savings?

Financial institutions are also thinking about consumers' money. Namely how to keep their customers' existing deposits and how to bring in new deposits.

In fact, the BAI Banking Outlook: 2024 Trends survey lists deposit growth as the number one challenge for banks. Complicating this effort is a projected 2.4% decline in deposits.¹

It is no secret that liquidity remains a challenge for many financial institutions. Especially for small to midsize banks and credit unions. Even with cooling inflation, consumers are dipping into savings to meet high prices for everyday needs. Plus, consumers are still rate-hunting. They are quick to move their deposits when they find another institution that offers higher returns for their deposit holdings, lower fees, or alternative investment options. At the same time, lending remains under pressure as consumers struggle with high costs to borrow.

Simply stated, the competition for deposits remains fierce.

First and foremost, financial institutions need to hang on to the deposits that they already have. But that's not enough; they also need to find and attract new deposits. They need to capture and develop relationships with consumers and small businesses that offer the most potential for future deposit holdings. Let's explore some actionable strategies that financial institutions can apply to fuel their deposit growth strategies.

1. Protect deposits held by best customers and members

You probably already know which of your customers or members have the highest balances with your organization. It can also be helpful to know which of these customers hold the majority of their deposits with you.

For example, you know that the Smith family holds upwards of $200,000 in deposits with you. This family has been banking with your firm for decades. They are good customers. But there is more to know to confirm the Smith family's 'good customer' status. You can also discover that the Smith family likely has $250,000 in total deposits held across all firms. That means that the Smith family relies heavily on your firm for its deposit needs.

But the Smith family is not living in a bubble. They are quite aware of the numerous offers for high-yield deposit products currently on the market. Or they may be exploring other investment options. There is a chance they will move their deposits to another firm and leave nothing with you.

What are you doing to keep the Smith family's deposits (and other investments) as part of your portfolio?

• Are you informing them about new or higher-interest deposit products that they can take advantage of at your firm?

• Do your agents know to prioritize the Smith family when they contact a branch or call center?

• How frequently are you reaching out to them to check on their savings and investment goals?

• Can you grow their loyalty and stickiness even more?

You need to protect deposits from the Smith family and from all of your best customers. This may be especially true for "young/high income" and "middle age/high income" customers. According to one study, they control over 60% of potential deposits at risk of moving.²

By deepening engagement and delivering preferential treatment, you can better ensure that you keep their deposits with your firm.

To be clear, this is most efficient as a targeted exercise. Focus your efforts on your best customers who have high balances and most of their deposit funds with your institution. Devote your resources, marketing efforts, and more-costly promotions toward these customers. Then you will be more likely to retain their deposits.

2. Gather more deposits from your current customers and members

How well do you understand your customers' or members' deposit growth potential? Your firm likely has a considerable segment of customers that have modest deposit balances with you. Yet they have much larger deposit balances held at other financial institutions. Capturing even a small percentage of those deposits 'held away' could result in millions or even billions of incremental deposits for your firm.

Gaining this knowledge and discovering your deposit share of wallet is possible with household-level deposit estimates. One financial institution conducted an analysis of its current customers' deposit growth potential. It discovered that its customers have a lot more money - both deposits and investments - than it thought. But, they held those assets at other firms. With this insight, the firm can take action to incent those members to transfer deposits to its organization. Plus it can focus on delivering exceptional service to keep those deposits. Explore how another firm approached this analysis and expected to bring in $70 million in incremental deposits from its current customers.

Again, this exercise is most efficient when targeted to a segment of your customer or member base. Specifically those customers who have significant deposit funds held away. There could be any number of reasons why they are not holding the majority of their deposit portfolio with your firm. But if you focus your incentives and investment on these customers, you will be more likely to incent them to transfer deposits to your firm.

3. Attract deposits from consumers that look like your best customers

Remember the Smith family from Tip #1 above? The family that has high deposit balances and has an affinity for holding almost all of their balances at your firm? Finding and attracting more customers like the Smith family can help you bring in new deposits and grow your portfolio.

Financial marketers can use asset and deposit-based segmentation to find more customers like the Smith family - your best customers. Use this guideline to get started:

• Profile your best customers. What do they look like in terms of deposit balances and other financial and economic measures? Are they concentrated in certain segmentation clusters?

• Personify their characteristics. What are their attitudes, behaviors, preferences, demographics, lifestyle, media habits, and preferred channels?

• Pinpoint and attract more customers like your best. Use the knowledge about your best customers to find more like them - both where they reside geographically and in the digital landscape. Then market to them with compelling messages based on their likely deposit needs and what will resonate with them given their personal characteristics.

A leading bank conducted this type of analysis. It found that the majority of its best customers were concentrated in just three clusters noted to have over $150,000 in estimated total household deposits. This allowed the bank to target similar households that were also likely to hold high deposits at other firms. The bank identified over $5.6 billion in potential new assets held away.

4. Smartly attract new customers to grow future deposits

There are a few segments that financial institutions should keep on the radar. Some of these groups might not bring in significant deposits to your firm right now, but likely will be able to in the future. Keep these audiences in your marketing plan:

• Young affluent consumers. They hold 11.7 higher deposit balances than young, non-affluent consumers.³

• Households likely to increase their assets in the near future. One bank proactively identified segments that had an over 20% growth in assets over a three year timeframe.

• Families that may be a part of the $84 trillion Great Wealth Transfer.⁴ Use total household asset estimates to identify your current wealthiest customers. Then, increase engagement with their family members now, before they receive an inheritance.

• Households in states with growing deposits. New Jersey, Massachusetts, New York, Connecticut, and New Hampshire led the way with the largest growth in median household deposits between 2020 and 2023.⁵

5. Gather more deposits from small businesses

Small businesses offer financial institutions another source for new deposits. There are over 33.3 million small businesses in the U.S. and millions of new businesses formed each year.⁶ To tap into deposits from these small businesses, you first need to be able to identify them. Then, you need to know which small businesses hold the most deposit opportunity for your financial institution.

According to Equifax research, up to 21 percent of an organization's customers could also be potential small business owners. Do you know which of your consumer deposit customers own small businesses? You can figure this out with an owner-to-business data linking solution. Once you know which of your existing customers also own small businesses, you can use small business asset measures to narrow your marketing focus. Use these measures to pinpoint your customers that own small businesses that likely hold high invested assets - up to $20 million per business. Then, you can target these customers for your small business deposit product communications and promotions.

Keep the momentum for your deposit gathering strategy. Gain additional insights around growing deposits in our eBook.

For more on deposit growth, read our other blogs:

Sources:

1. BAI, Jan. 17, 2024.

2. 2023 McKinsey Panorama study as reported by the Financial Brand, Feb 23, 2024.

3. The Young Affluent: 6 Ways for Financial Services Firms to Capture their Potential, Equifax analytics.

4. CNBC, June 18, 2024.

5. Equifax analytics.

6. Small Business Statistics of 2024, Forbes, Jan 31, 2024.

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