Do Banks Owe Their Customers Transparency About Better Savings Rates?
The recent CFPB lawsuit against Capital One over savings account rates (now dismissed) raised questions about banks’ obligations to existing customers. Experts say leveraging tools and technology for personalization — not blanket notification — could provide the right balance.
By Liz Froment, Contributor at The Financial Brand
Banks design savings products to meet specific business objectives: high-yield savings accounts help attract deposits, while lower-cost deposits drive long-term profitability. Under the Truth in Savings Act, banks must disclose account terms upfront — but aren’t obligated to alert customers to better rates later.
But a recent lawsuit drove renewed debate around transparency. The Consumer Financial Protection Bureau filed a case against Capital One in which the agency alleged Capital One customers were left in a lower-yield savings account when a higher-yield option was available, saving the bank billions in interest payments. The suit was subsequently withdrawn by the Trump administration, so the regulatory future is uncertain.
Nonetheless, the real question for banks: Should they proactively alert customers to better savings options, or is it up to them to stay informed?
The Economics Behind Banking
Banks manage savings products to protect margins and future lending. The spread between deposit costs and lending rates drives bank profitability. Proactive rate notifications could erode margins by shifting customers to higher-cost products without building long-term loyalty.
"The business of banking relies on access to low-cost funding," Brian Graham, partner and co-founder at Klaros Group, a financial services advisory and investment firm, tells The Financial Brand. "Requiring every bank to deliver the highest deposit rate to every customer would shatter the basic economics of banking and result in far less lending at far higher interest rates."
He points to recent Q3 2024 data: on average, banks earned a 5.95% yield on assets, but the industry’s cost of financing them was just 2.72%, leaving a net interest of 3.23%, well below market rates.
Banks structure high-yield savings offers carefully to limit competition, even internally. Having a mix of deposit costs, from lower-cost deposit savings to high-yield accounts, helps banks fund lending programs that serve their communities.
Sending customer notifications for every rate change could potentially increase borrowing costs and limit credit availability for consumers and businesses. "That’s why, for some rate-driven savings products, a customer can only get the better rate for ‘new money,’" notes Adam Neiberg, senior marketing manager for global banking at SAS, a data and AI solutions provider. "You’ll even see a bank offer a higher rate for an online-only version of a savings product. You cannot get that rate if you try to open it in a branch."
However, higher rates don’t guarantee customer loyalty. "A higher-yield savings account doesn’t mean the customer will stick with a bank; some clients are just rate shoppers, moving their money wherever they can find the highest interest," Neiberg says. Rate shoppers often have high churn rates and short-term deposits, making them unprofitable customers.
The challenge for banks is finding the mix between controlling deposit costs and building loyalty. Fintech platforms and third-party aggregators are making rate comparisons easier than ever. According to the BAI Banking Strategies 2025 Banking Landscape report, rate shopping is the second most common reason customers switch banks. Proactive outreach could drive up deposit costs and attract more rate-sensitive customers who may not stay, shrinking margins without improving long-term profitability.
Learn more:
- Unintended Consequences: How Will CFPB Hiatus Impact New Product Development?
- What Should You Do About the Turmoil at the CFPB? The Short Answer is: Nothing
- Rethink Early Withdrawal Penalties to Create a Win-Win for Banks and their Customers
Balancing Strategy and Customer Communication
The Truth in Savings Act doesn’t mandate that banks tell customers about better rates. "Banks don’t have a duty to notify depositors of alternative or better products," says Graham. "It is at least currently the customer’s responsibility to stay informed."
What about proactive notifications; can they drive customer retention? This approach has practical limitations. "Banks offer so many products that it would be challenging to let customers know each time they introduce a new product," Teri Williams, president and COO of OneUnited Bank, tells The Financial Brand. "There are also many features to a product beyond rate, such as minimum balance to open, minimum balance to earn interest, minimum balance to avoid fees, etc., that it would be challenging to let customers know if a ‘better’ product is available."
Jim Hunsanger, chief risk officer at MSU Federal Credit Union, emphasizes that a one-size-fits-all approach to product recommendations doesn’t work. "Providing a blanket recommendation for a specific product would be a disservice to consumers, as it fails to account for each consumer’s unique financial goals and circumstances," he says.
In today’s environment, consumers demand more personalization. As banks shift towards targeted outreach, both advocate for more strategic customer service and communication approaches. "Financial institutions should develop a strategic marketing and communication plan that helps individuals identify the most suitable products or product combinations," says Hunsanger. He stresses that marketing and communications need to be "accessible, transparent, unbiased, and easy to understand."
Williams agrees while also noting that service quality matters to consumers and can be a competitive factor for building long-term relationships. "Like any business, high-quality customer service delivery is important to attract and retain customers," she says.
For banks, proactive communication works when personalized, relevant, and aligned with business goals. The complexity of banking products and the variety of customer needs can make mass notifications potentially misleading or even counterproductive to their personal situations.
Future Considerations for Building Long-Term Relationships
Technology could refine how banks approach rate communications. "As open banking begins a phased rollout in 2026, the power will move a little in the customer’s favor to better manage their financial future," Neiberg predicts.
Banks can leverage AI-powered personalization tools to deliver targeted communications, making outreach more tailored and profitable. "Banks should be helping customers better manage their finances," says Neiberg. "However, the more profitable a client is, the more effort the bank will make to keep them. Those clients are more likely to get personalized service and attention. AI may change that equation and allow banks the bandwidth to be more proactive."
Hunsanger suggests banks prepare employees to be more proactive and engaged with customer interactions to provide better service. "Financial organizations should equip their employees with the knowledge and training necessary to provide consultative services, guiding consumers toward products that best align with their individual needs."
A shift toward personalization could help banks keep more profitable low-cost savings account relationships even if rate competition grows. Mobile banking apps already help flag potential overdrafts or suggest better credit card options; similar approaches could extend to savings products.
Through predictive analytics, customer transaction patterns, life events, and financial goals can help banks proactively recommend relevant products and services at the right time. For example, a customer with a large CD coming due receives a different message than a low-balance savings account holder who frequently moves money between banks. Focusing on targeted marketing aligned with customer preferences and financial goals can help banks build stronger relationships with consumers and create long-term loyalty.
Moving Beyond Rate Competition
Banks can balance deposit costs with customer expectations. Ultimately, consumers are responsible for staying informed, and blanket rate notifications aren’t practical or financially sustainable. However, banks can demonstrate their value to consumers beyond interest rates alone. Leveraging technologies and tools to help personalize strategic communications and build profitable long-term relationships with consumers can help maintain deposit accounts without undermining banking profitability.
Focusing on targeted messaging that considers individual customer’s needs and behaviors and keeping the overall customer experience in mind can help reduce rate shopping and keep consumers engaged longer. With this approach, it’s possible to create data-driven engagement that boosts customer relationships while protecting the bottom line.
