As the battle for deposits continues to be the major challenge for community financial institutions, many institutions rely on high-yield CDs, borrowings, and standard money market accounts to keep pace. But those solutions come with their own challenges and risks.
Just because deposits are increasing doesn’t equate to real, sustainable growth. In fact, many times those deposit strategies lead to unsustainable funding costs, high attrition, rate shoppers, constant repricing, ongoing liquidity struggles, and more.
So, even though you may have been seeing more deposits and an influx of new account holders, the balance sheet may not be showing the same growth. And in many cases, just the opposite.
Phantom growth is today’s banking villain.
It’s happening at financial institutions every day, in several different ways:
- The high yield you advertised brought in new deposits, but the Cost of Funds ate up every penny of margin.
- The new CD promotion brought an influx of customers, but they all left for a higher rate as soon as the term was up.
- The consumer signed up for a new account, but then closed it when the fancy new fintech offered more.
- The signup bonus resulted in a lot of new accounts, but the deposits never followed.
Time for a new way of thinking.
In a world where it’s getting harder and harder for community financial institutions to survive, there is a way to drive profitable, lasting growth while protecting margins and gaining consumers for life.
To drive real growth, and gain consumers for life, you need to do three things:
- Change the math.
- Perfect the offer.
- Manage the surprises.
Change the math.
The current math is definitely not adding up. The big special promo that’s supposed to bring in all kinds of profits never shows up on the bottom line. New deposits come in, but the cost is too high, and the customers take off as soon as the term is up.
Changing the math means increasing your deposits at a lower Cost of Funds by:
- Dividing your promoted rate and your cost into two separate, manageable variables.
- Offering a high APY checking account rate with a true funding cost of less than half of that rate.
- Increasing transactions and e-statement adoption with set monthly requirements.
- Making every account more profitable by driving consumer behavior that generates significantly more non-interest income.
- Attracting younger, more engaged consumers with incentives for every type of account consumer.
- Gaining a stable funding source with a much lower attrition rate than typical free checking accounts.
Perfect the offer.
Having a new product to offer is always exciting. The trick is being able to train and motivate your front line staff to sell it. You’ve got to make sure you have the right message, the disclosures, the online presence...the list goes on and on. If you don’t have all these in place, your product won’t get the needed traction.
Perfecting the offer means going to market in a proven way that drives results:
- Equipping every team member to sell confidently with an on-demand learning portal, on-site retail training, and ongoing support.
- Creating more compelling campaigns with best practice recommendations based on proven marketing plans and rich demographic data.
- Getting advice on the right product mix to help you achieve your unique goals.
- Testing out ideas and potential strategies with “what if” scenario reporting and sensitivity modeling.
- Creating all disclaimers and disclosures efficiently and effectively.
Managing the surprises.
It happens all the time. You finally get everything up and running smoothly and BOOM — one change throws the whole thing off. Maybe it’s a rate. Or a regulation. Or some shiny, new neobank hitting the market with sky-high yields (plus an iPad for signing up). The problem is, you never know what or when it will show.
Managing the surprises means optimizing program performance through regular analysis and consultation:
- Working with experts who understand community banking.
- Tracking exactly where you stand through evaluations and profitability.
- Creating the best response to market change using nationwide institution data.
- Leveraging decades of experience in multiple rate environments.
- Getting data-backed recommendations from peer benchmarking across nationwide account holders.
It takes more than hot money to drive real growth.
When it comes down to it, you know how to get deposits when you need them — just advertise a CD with a higher yield than the institution down the street. But you also know how costly this strategy can be. CDs don’t offer much margin (if any), don’t translate into other profit centers, don’t drive debit card interchange, and don’t retain customers when the term is up.
It all looks like growth on the surface, but a deeper look tells a far different story. What you really need is a proven way to drive consistent deposit growth while protecting margins. And that won’t happen with CDs.
What community financial institutions need right now is stronger non-interest income, greater operational flexibility, broader consumer appeal, and interest margins that widen vs peers who depend on funding sources more sensitive to interest rate risk.
And all of those can be accomplished with a unique approach to retail checking and savings. To learn more, be sure to download the eBook — Creating real growth in the funding gap crisis.