Switching banks was a hot topic in 2023. Consumers came alive and began looking for the best place for their money. Banks, credit unions, and fintechs answered with offers meant to garner new accounts, and hopefully new relationships, with teasers at higher rates than general deposit pricing, which lagged across the board throughout the year.
With that lush landscape of higher interest rates, though, came words of caution for consumers throughout. Financial gurus advised consumers to “beware ‘high yield’ savings accounts” and offers teasing “rates to entice people to deposit new money.”
This year, stories have appeared in the Wall Street Journal and New York Times naming banks and quoting customers who say they would not have opened or held certain accounts if they had known what they actually paid. While consumer media tend to take stories in a negative (Consumer Financial Protection Bureau) direction, most bank and credit union executives should focus on how they make teaser offers successful, both for their institution and depositors.
As I wrote in The Financial Brand last year, no deposit tactic is “bad” or “good” in and of itself. So what makes teasers worth the trouble (and the cost)?
Executives can use four strategic questions to examine their approach:
1. Will it be perceived as fair and consistent by depositors and staff alike?
2. Is the pricing strategy easy to understand and execute for the frontline staff?
3. Is a tactic valuable to depositors and the institution?
4. Is the approach effective at attracting and retaining the desired deposit volumes at healthy margins?
Let’s assess teasers using these questions.
Assessing Teaser Offers
Are teaser offers perceived as fair and consistent by depositors and staff alike?
All depositors who take the bank up on the offer get the same thing, and staff can easily understand and communicate the offer. The bank will pay anyone 4% on a specific new account until May 1. Or, if you bring in more than $20,000, the bank will provide a cash incentive of $350. It’s a take-the-deal, get-a-defined-windfall exchange.
In theory, there is only a fairness problem if there’s a “gotcha” moment, meaning the depositor never sees a mismatch between how the account was portrayed and how it is – an inability to leave exacerbates the issue.
Otherwise, the teaser is a boon if the interest paid is greater than that paid to the bank’s other clients – albeit briefly – and they can get out of it anytime.
Depositors’ perceptions of fairness are another matter. Naming can push the envelope up the line, though banks do it intentionally. Institutions can have “premier” versions of basic accounts with the same names except for the word “premier.” In that case, the similarity is not to confuse but to showcase that one account is an upgraded version of another.
Names where an institution adds terms that delineate no meaning, however, can cross the line. For example, is a “360 money market premier” account better or worse than the “money market premier?” You do not want frontline staff to have conversations with depositors about unexpected differences between two accounts with names only differentiated by a number.
Make Way for Staff to Engage Depositors
Is the pricing strategy easy to understand and execute for the frontline staff?
Staff also develop views about fairness. If it looks like trickery to frontline staff, they won’t buy into it. Because they play a vital role in an institution’s ability to promote and open teaser deals, frontline staff must see why an offer is competitive and desirable.
Processes also need to support the frontline well as they engage depositors. For example, if a teaser is to open an account and receive the rate from the date of opening through March 31, that’s pretty easy to understand and execute. If, on the other hand, staff have to keep in mind the date that each count is open or they have set a rate adjuster in the core system, then the administrative burden becomes more than minimal.
Improve any process that hinders the frontline’s ability to bring in funding.
Read more:
Teasers Are About Changing Behavior
Is a tactic valuable to depositors and the institution?
Teaser offers are valuable to depositors and the institution when it gives depositors “more.” That tends to be what clients want. A teaser provides more for a time, but what about after that?
The answer comes from what the bank wants from the offer: To change depositor behavior.
The last thing a bank wants from its teasers is depositors who feel like they need to beware, and that’s not because the bank wants to deceive anyone. Teasers are about becoming one of depositors’ top financial providers, if not their preferred financial provider. The last thing a bank wants is negative surprises because they can eliminate an institution’s chances of winning someone over.
Depositors sign up for teasers of their own volition. If anything, an offer or a special is a boon for those who volunteer to participate. The art for executives is to avoid attracting only rate shoppers who will stay for the boon but not for long-term banking.
Capitalizing on an Opportunity Acquired
Is the approach effective at attracting and retaining the desired deposit volumes at healthy margins?
This question is the most critical because many teaser participants are rate shoppers. Some people enjoy coupons and sales like it’s a hobby, and some want nothing to do with them. If a bank succeeds only at attracting the couponer who moves from deal to deal, it’s a miss on the opportunity purchased with the cost of the teaser.
The measure of the value of any deposit product to its institution is its effectiveness at attracting appropriately priced deposits in oversized volumes. Banks will miss the mark if depositors only feel good about their choice for a while, especially when they don’t feel good about it afterward.
So, what’s the key to making them happy about their decision? You’ve got their attention, you got them to take action, and now they need to like their experience.
I’ve never seen a bank run a teaser program and then lose every single account gained. But it won’t elevate the bank’s status in the eyes of depositors on its own. Instead of becoming experts available to depositors on managing money, the bank remains a product-purchaser that looks the same as the competition.
For that reason, success in showing value to depositors and bringing value to institutions isn’t about determining if teasers are a “good” or “bad” product. It’s about taking the opportunity they provide to convince the people looking for a PFI that your institution is their new home.
Neil Stanley is the founder and chief executive officer of The CorePoint.