Beyond Interest Rates: Five Strategies to Attract and Retain Deposits

In the relentless pursuit of deposits, outbidding competitors with higher interest rates may seem like a straightforward solution, but in a fluctuating rate environment, community banks have less-costly strategies available to entice depositors. Embracing a more holistic approach that focuses on cultivating meaningful relationships, enhancing visibility and providing value-added services that resonate with existing and prospective customers can set the stage for more sustainable deposit growth.

Here are five strategies banks should consider employing to increase deposits, beyond interest rates:

1. Know Your Bank’s Audience. Analyze customers’ banking habits, demographic information and financial goals. Identify patterns and preferences among the most loyal customers, and tailor marketing campaigns that resonate with similar demographics. For instance, if analysis reveals that a significant portion of your bank’s customer base consists of retirees seeking stable investments, your bank’s team can develop targeted messaging that promotes retirement savings accounts or certificate of deposit (CD) options. This personalized approach can foster a deeper connection with customers, leading to increased loyalty and deposit.
2. Boost Visibility. Continue to participate in events, sponsor local organizations and support community initiatives to enhance your bank’s community presence. Your bank is likely already sponsoring a charity run or hosting financial literacy workshops at local schools. Ensure that your community knows what you do. Depositors that value community and your participation are likely to support marginally lower rates.

3. Review and Improve Business Services. Offer specialized services tailored to the needs of small businesses and entrepreneurs to differentiate your bank. For instance, enhance your cash management solutions to help businesses optimize their cash flows or digital payment platforms to streamline transactions. Addressing business clients’ unique challenges can help your bank become an indispensable partner in their success. This value-added service proposition can attract new business customers while also strengthening existing relationships.

4. Make Switching Easier and Faster.Simplify the electronic transfer process in areas such as automatic deposits or bill payments for both business and retail customers to lower switching barriers. Clearly communicating any assistive services offered by the bank through various sales channels can encourage potential new deposit customers to make the move. Consider integrating assistive deposit account switching services into specific products to incentivize potential customers to choose your bank at rates that make sense.

5. Tie Loans to Deposits. Offer integrated banking solutions and require an operating account or household checking account for each new credit relationship. This approach can foster long-term customer loyalty and reduce churn by creating mutually beneficial partnerships between you and your customers. This may slow down or reduce loan production, but over time it is likely to increase your net interest margin.

By implementing these strategic initiatives, community banks can attract deposits effectively without relying solely on interest rate competitiveness. The value-added services and personalized approach offered by community banks often outweigh the marginal interest rate differences, making them an attractive choice for depositors seeking smart banking solutions.