Want Lower CD Expense? Fix Your DDAs First
By Matt Doffing, Senior Editor at The Financial Brand
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Banking institutions have long sought demand deposit accounts (DDAs) because they bestow primary financial institution status. And, because checking accounts don’t mature and often only pay nominal interest, they have long been a favored product among banking executives.
But now other financial institutions and fintech firms are intensifying competition for DDAs, forcing institutions to fund their balance sheet with other accounts. Executives have often found themselves holding their noses as they run CD promotions and accept the high cost and locked-in nature of CDs.
In 2024, banks had the highest interest expense they have ever seen. Although rates are now in decline, bank interest expense remains well above the prior record highs of 2006 and 2007.
Rising deposit costs affected all institutions. According to exclusive first quarter 2025 data from Kasasa and The CorePoint (below), nine institutions broke the pattern:
- They saved $345,000 in interest expense per $100 million in certificates by paying just 4.08%, well below the 4.43% industry average.
- These banks achieved a 7.9% increase in profitability over peers by adapting core funding approaches.
Want to know where that higher profitability came from? Institutions achieved it by adapting to the current competitive landscape for checking accounts.
Want more insights like this? Check out Kasasa’s intelligence hub: Low-Cost Deposit Strategies
Need to Know:
- If your DDAs aren’t differentiated, your institution will keep getting pushed into higher-cost CDs, regardless of what rate markets do.
- Checking account rewards based on behavior enable greater funding from DDAs, reducing the need to compete on CD rates.
- Training frontline teams to lead with value (dollarize outcomes, uncover goals, customize terms) allows banks and credit unions to avoid price matches and still retain relationships.
Reality Check: New Competition for DDAs
Non-interest-bearing accounts (checking accounts) are largely responsible for the cessation of deposit growth at banks. Part of the reason for that is competition. As The Financial Brand recently reported, two of the nation’s leading fintechs together exceeded the DDA growth rate of the country’s largest bank by a factor of two, according to J.D. Power’s “Financial Services Churn Data and Analytics” study of 80,000 U.S. consumers.
Chime led new checking account openings in Q3 at 13%, followed by JPMorgan Chase at 9% and SoFi at 5%. A closer look reveals more concerning data.
- When consumers opened “additional and replacement accounts, 72% opened them with a different provider than their existing primary financial institution.
- The research also determined that over half — 54% — of those opened with new providers became the consumer’s new primary account,” reported The Financial Brand’s Steve Cocheo.
This consumer shift directly drives changes in bank funding strategies: As competition for DDAs and savings intensifies, banks rely more on CDs, keeping funding costs high. This reinforces the argument that mastering DDA acquisition and management is crucial to lower-cost funding.
How did a cohort of community institutions have a low cost of funds in an environment like this?
Principle 1: Focus on Rewards to Drive DDA Growth
These nine institutions enhanced DDAs by tying rewards to depositor behavior. Instead of promotional gimmicks or rate wars, depositors qualified for rewards—such as higher interest, cash back, streaming or grocery perks, or matched savings—by meeting monthly criteria like debit card usage, direct deposit, and electronic statements.
These behaviors not only create value for the account holder while bringing in account balances over $10,000 but also generate 50% increases in interchange income and 23% longer life expectancy for DDAs – nearly doubling profitability compared to other checking accounts.
While it makes sense that this type of enhancement to DDAs increases their appeal, loyalty, and profitability, how did it translate into savings on CD costs for the nine institutions studied? When the institution has more and more profitable DDAs, the pressure to give in to rate shoppers is lower. It can decline a bad deal.
Participants in the study declined price matches without necessarily forfeiting the deposit.
Principle 2: Say No to Matching and Still Keep the Business
The nine institutions studied also developed the skills to negotiate with CD customers, an investment not commonly made when CDs are a hold-your-nose product. These institutions emphasized training and equipping their frontline staff to engage local depositors amid rising rates.
In particular, they focused on depositors’ desire for greater value in an industry where most other institutions define value solely in terms of price. If price is the only bargaining chip, then cost of funds can only rise each time staff engage with depositors.
So how do these institutions provide that greater value then?
The nine studied made three primary changes that are uncommon among community institutions:
- They replaced static rate sheets with a dynamic process that identifies depositors’ objectives and engages them accordingly.
- They stopped speaking only in terms of an APY and instead dollarized CD yields. When engaging with rate shoppers, the institution typically did not offer ad hoc exception pricing.
- They provided staff with the tools and training to customize CDs by maturity and early-withdrawal options.
CDs are Defense, DDAs are Offense
It’s easy to see why executives favor DDAs, but it’s akin to a coach favoring his football team’s offense over its defense because defenses don’t score many points. The best football teams score no matter which part of the team is on the field.
CDs tend to command so much volume on a per-account basis that even small savings in pricing can yield an outsized improvement in profit. The ability to negotiate for those savings, however, comes from a strong DDA offering in a marketplace where differentiation is increasingly required.
Fixing DDAs’ appeal while also improving CD negotiation was the path to a much lower cost of funds.
