Deposit Term Tsunami
In an article published last month by The Financial Brand, James White of Total Expert brought up a topic that every FI ought to be thinking about – around $2.5 trillion in bank CDs will be maturing in the next 12 months, over $950 billion in the next three months alone. Add to that the half-trillion in share certificates at credit unions, and you really do have what White refers to as a “deposit term tsunami” on your hands. For marketers, deposit product managers, and CFOs the question is: will you catch this monster wave for the ride of your life, or end up tossed aside on the rocks wishing you’d stayed ashore?
I’ve written before about the dangers of the approach many felt forced to take over the last year or two when faced with liquidity concerns, focusing on rates in ways that threatened to turn otherwise inexpensive core deposits into rate-sensitive funds (which seems to have happened; at credit unions, certificates’ share of total deposits is double what it was 2 years ago, having grown by $290 billion while total deposits grew by about a sixth of that). But what’s done is done, the money is where the money is. This is the new reality. Right?
Maybe not! Timed deposits being what they are, just when we get used to this new higher cost of funds (which, to be fair, is a lot closer to the historic norms than what we’d seen for most of this century), they start maturing! Now what – do we have to scramble again just to keep them? Are we in for the Battle of the CD Rates 2: the Sequel? Or will the Fed ride in with rate cuts and save the day?
Well, I won’t dare speculate about what the Fed will do, or what it might mean in either the short or long term for FIs’ cost of funds. But, I do have some thoughts about how we might approach what could prove to be a rather tumultuous time. Here are my “Dos and Don’ts” for ensuring you keep your share of deposits when the tidal wave of maturities hits you.
Dos and Don’ts
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Do have a plan.
If you’ve finally caught your breath and once again focused your attention on lending (which is why you wanted the deposits in the first place), it might be tempting to just trust that things will be okay. Don’t do that. Do the math, have an idea of what to expect, and make a plan for how to deal with it.
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Don’t count on automatic renewals.
Most FIs have automated renewal as a default setting on their CDs, and in normal times they could probably count on most depositors just letting it ride. But these are not normal times! In our own (very unscientific) poll, only 11% of respondents said they planned to let their maturing CDs renew. Counting on auto-renewals could be a risk you shouldn’t take.
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Don’t treat everyone the same.
While we may have made this mistake last time, there’s no need to repeat it. Not all money is rate-sensitive, but if you dangle a high rate out there, people are going to take it. Use your data to determine what a consumer is most interested in, and make your appeal based on that rather than just counting on rate. You might be able to move some of that money into a high-yield checking account if you play your cards right.
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Do reach out!
Whatever you decide to do about rates and products, the most important thing you can do is to engage with your depositors early and often – and not just about their maturing CD. Start a conversation, share helpful information and tips, ask them questions … and do it now, don’t wait until 15 days before maturity! Sure, rate matters – but having a trusted partner who cares about them and their finances matters more. Find the channel that your depositor favors most (hint: for most, it’s mobile) and start a conversation. You may not keep their money this time, but chances are you’ll keep the relationship. And isn’t that really what you want?
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As financial institutions brace for the coming wave of maturing CDs, engagement becomes more than just a strategy—it’s a lifeline. If maturing CDs are a tsunami, then consumer engagement could very well be your surfboard. Pulsate helps financial institutions stay ahead of challenges like this by keeping the lines of communication open and personalizing every interaction. Instead of waiting until the last minute to reach out, leverage Pulsate’s powerful tools to engage your account holders early and often, offering relevant insights and solutions tailored to their needs. By staying connected in the secure channel most consumers prefer to handle their banking needs—your mobile app—Pulsate empowers you to build lasting relationships that go beyond rate sensitivity, ensuring that your FI rides the wave instead of getting swept away.
Want to learn more? Let’s talk.
