Community banks have been looking for the perfect recipe to attract deposits in a market in which consumers and commercial customers continue to switch institutions in search of better rates.

Over the past few years, high interest rates combined with bank failures and accompanying wariness have driven customers to seek better returns on their investments. Despite many financial institutions raising the rates on their deposits to attract and retain customers, deposit rates have been slow to catch up with yields on alternative investments, such as certificates of deposit (CDs) and money market funds. In April of 2023, $1.1 trillion in deposits left U.S. financial institutions.

Since then, deposits have started to climb slowly and are set to grow in the second half of 2024. In this climate, growing healthy deposits has become the number one business challenge for bankers, according to BAI’s 2024 Banking Outlook. The strategies to do so vary depending on the type of deposit growth you are seeking. While rates and fees associated with deposits matter greatly, other strategies become key to driving growth once rates are within an acceptable range. We explore three key strategies for both consumer and business deposit growth that have proven successful.

Strategies to Attract Consumer Deposits

1. Maximize the use of technology. A good online and mobile offering allows banks to increase their reach to audiences across the country. Moreover, coupled with a personal touch, it is a critical part of a slick customer service offering. Veritex, a Texas-based bank with $12.1 billion in assets, invested in technology to streamline its account opening process. They credit the new technology — and the extensive employee training program that went with it — for the $135 million spike in deposits in the first 90 days after launch.
2. Offer reward checking accounts. For many institutions, reward checking accounts have proven effective in boosting long-term deposits by 4%. Essentially, reward checking offers a high return, around 6%, on a portion of the deposit — perhaps the first $20,000 — in exchange for a minimum level of engagement, such as card usage, online banking usage and so on. Lower engagement leads to a lower rate, with the interest rate dropping on deposits over the initial $20,000. Overall, the 6% peak rate is appealing to customers. What’s more, due to the nature of the product, customers are engaged and interact regularly with the institution, making them more likely to stay.
3. Consider promotions and offers. Many financial institutions are now offering free gifts to attract new deposits. Consultants say this can boost new account openings by more than 15%. Other institutions are foregoing the physical gift in favor of a cash bonus, the value of which is often linked to the amount deposited. However, whatever promotions and offers a bank might adopt to woo customers, excellent customer service is key to retaining them.

Strategies to Attract Commercial Deposits

1. Explore niche markets. Expand your institution’s reach into niche markets to attract more commercial deposit customers and offer specialized services for those markets. For example, property management businesses could benefit from disbursement services and property management software integration. Homeowners Associations (HOAs) could use automated dues collection and detailed financial reporting tools. Healthcare providers could use secure patient billing and payment processing systems.
2. Institute conditional or incentivized deposit programs. Implement policies that require businesses to maintain deposit accounts, including their primary operating account, as a condition for securing a loan. This not only enhances liquidity, but also fosters a deeper relationship with those commercial business customers. Another option is incentivized deposit programs that may include bundled services to offer fee reduction perks or a limited-time deal on an earnings credit rate (ECR), for example.
3. Increase operating account support. Encourage business customers to grow their deposit accounts by providing services, tools and personalized support. Offering cash management services can help businesses manage their cash flow, forecast expenses and plan for growth. Assign dedicated relationship managers to provide personalized support and help businesses optimize their financial strategies.

Growing deposits in a competitive and ever-changing market requires a blend of innovative technology, customer-focused strategies and personalized support. By implementing multiple strategies, community banks can effectively attract and retain both consumer and commercial deposits.

To continue this discussion, or for more information, please contact Matt Helsing at mhelsing@pcbb.com.

Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes cash management services such as Settlement and Liquidity for the FedNow® Service, international services, lending solutions and risk management advisory services.