The deposit market, which had been remarkably dull and easy to overlook for over a decade, continues to deliver new twists. The latest shot across the bow comes courtesy of Apple and Goldman Sachs – in the form of a savings account with a 4.15% annual rate and no minimum balance.
How much pressure this new product will add to the deposit-gathering environment remains to be seen. It requires depositors to have an Apple Card account and is a digital-only offering. Nonetheless, the publicity generated by a major brand like Apple is bound to give more people a reason to consider moving their accounts.
SRM closely follows developments related to the Apple savings account and the deposits market at large. Our earlier blog offered impactful deposit strategies for banks and credit unions.
Now, let's delve deeper into the psychology behind deposit strategies.
More Money in Motion
The ongoing rise in interest rates, combined with turmoil triggered by Silicon Valley Bank's and Signature Bank's high-profile failures, has placed deposit balances in motion not seen since the 1980s. Some banks reported double-digit year-over-year decreases in deposits during the first quarter, with several more disclosing smaller declines.
With rising rates comes underlying bank paranoia about losing liquidity. Although recent developments indicate that such fears sometimes come to fruition, most institutions – particularly community banks and credit unions – remain comfortably liquid and have experienced little, if any, deposit runoff. The challenge lies in keeping it that way without sacrificing the interest spreads that make deposits such an attractive source of funds in the first place.
Tearing Up the Rate Card
Every bank has a continuum of clients with varying degrees of loyalty and propensity to buy a broader array of products. Deepening engagement with existing customers and members is typically far more cost-effective than chasing after new money with the high-rate offers necessary to induce action.
The solution may well be to tear up the rate card. It's a relic of a bygone branch-centric era. After all, what are the chances a customer or prospect will be aware of published rates at the "moment of truth"? Special offers change rapidly and can be targeted to respond to evolving market dynamics. If no one sees your financial institution's rates, they won't move the meter.
On the other hand, heavy use of sweetheart promotions without a well-executed cross-sell strategy risks attracting a nominal amount of "hot money" while creating messaging issues for a larger base of existing depositors. At the end of the day, data analytics informing a purposeful and highly targeted strategy is the best approach.
Lessons Learned Along the Way
Bankers also shared some learnings during quarterly calls. Deposits linked to lending relationships tend to stay with their financial institutions. Some bankers are mulling ways to incentivize borrowers who bring their deposits into the bank – or disincentivize those thinking about pulling them out.
Other banks have ramped up their tracking of uninsured deposits to understand better why they are leaving – and where the money is going.
Bankers also acknowledged the importance of communicating with depositors before a panic arises. "It is hard to rationalize a person out of a situation they didn't rationalize themselves into," Ken Vecchione, CEO of Western Alliance Bancorp in Phoenix, said during his company's quarterly call.
The Bottom Line
The current hyper-competitive deposit environment was a top-of-mind issue for bank and credit union leaders before the Signature Bank and SVB fallouts and is likely to stay top-of-mind for some time. We strongly encourage institutions to leverage data analytics to optimize deposit balance opportunities within their existing base, which exceed those available in the near term from new customers.
SRM will continue to share suggestions and analysis based on our dialogue with industry leaders and decades of first-hand experience earned through past cycles. We also invite you to contact us to learn more about our offerings to enhance deposit and cross-sell programs.