In three months, nearly $950 billion in bank CDs will come to term. And that’s the first and smaller wave of a coming maturity tsunami for time investments. Some $2.5 trillion in bank time deposits will mature within 12 months; a record $8.9 trillion of government debt is set to do the same.
After the biggest time-investment origination boom since before 2009, savers using CDs, share certificates and U.S. Treasury bonds will be in the market for time investments en masse. As they receive emails and letters notifying them that their maturity date approaches, they will decide: Where should I place my money next?
Most depositors have a tremendous amount of opportunity in that question right now. Banking has never been more disunified in its approach to deposit pricing, and the industry has also never been more varied in its marketing acumen. Marketing sits at a focal point as bank and credit union executives consider how they keep deposits without getting cornered by rate-matching demands.
Loyalty may seem like it’s dying, but it’s really just become different today. Improved deposit pricing and segmented engagement via the marketing department can build a new form of relationship banking. It’s become an enormous opportunity to retain and attract deposits — and to do so profitably.
Certificate Popularity & Pricing Pandemonium
Consumers, small businesses, municipalities, and non-profits have shown significant signs of waking up to the attractive rates available by committing for a time to keep money at their bank. That demand has changed banks’ deposit composition substantially since rates began to rise in 2022.
According to first-quarter data from the FDIC, banks have never had more than the $2.9 trillion in CDs they have now. The NCUA reports certificate data in terms of deposit composition. Certificates now represent 27% of all credit union deposits, a record after a steady increase from 14% at the end of 2021.
Where did money move to certificates from? Banks’ deposit composition shows part of the story. Since 2022, noninterest-bearing deposits, the lowest-cost deposit type, have dropped precipitously. The volume movement out of noninterest-bearing looks comparable to gains in CDs.
If you’re doing the math on the ratio of CDs that will now term out, about 86% ($2.5 trillion) of all bank CDs will mature within a year. Over 32% ($950 billion) will mature within three months.
Remember what it was like getting all these CDs booked? Remember the steady drumbeat of depositors telling you they can do better elsewhere? All those calls and emails with the CFO or manager for exceptions? It’s probably not done. In fact, with economic data indicating rate policy will not see major change soon, depositors will continue waking up to their best interest. In the year ahead, they’ll join those reaching maturity in researching what they do next.
The pricing pandemonium that now greets termed-out depositors should concern some banking executives and intrigue others.
S&P data shows the “disclosed” rates depositors will receive if they allow their CDs to auto-renew. Of the 6,698 banks and credit unions disclosing rates to S&P, some 2,308 (34%) report a max rate – across any term – of no greater than 3%. Some 1,394 (21%) report their highest disclosed rate is less than or equal to 2%.
Now, these are not negotiated or promoted rates, but how happy is a depositor when they learn their auto-renew rate is at 3% or less?
Keep in mind that depositors can read the news. As of this writing, a one-year U.S. Treasury bond pays 5.1%, and a six-month bond pays 5.37%. Institutions need a way to relieve competitive pressures when a certificate booked at 4.5% needs no subsidization and is profitable without risk. Doing nothing about depositor engagement is becoming a greater danger to the cost of funds than almost anything else. It could force financial institutions to use much more wholesale funding.
Simple CD Math is Becoming a Retention Threat
Even at institutions promoted or negotiated pricing levels, deposit flight is a serious risk given the simple math operating in CD decision-making right now. Fintechs, such as Wealthfront and Public, now make treasuries look and act like CDs – and they pay more.
Whether a depositor is “locked in” to a CD or coming to term, they have options. “Without even offering a depositor the max Treasury rate, fintech can take a $100,000 CD at 3% with 12 months remaining to maturity from a bank,” explains Neil Stanley, CEO and founder of The CorePoint, which specializes in CD refinancing. “The depositor can eat the $750 three-month penalty and enter a 5% investment – CD or treasury – for 12 months, and the net benefit is $1,213.”
“The risk here is: What happens when sleepers awake? You don’t want them feeling you took advantage of them,” Stanley explains. “In that case, the depositor can go from a good relationship [for the bank] to gone, and it can happen quickly with today’s technology.”
Every institution wants its sleepers to sleep and prevent deposit repricing. Consider that one of two things will now happen:
Many depositors will call the number on their CD renewal letter. Given industry best practices, they’ll probably receive a promoted rate and maybe a 25-basis-point rate bump from a personal banker. Those who miss the renewal have a high risk of “waking up” in a few months with a damaged opinion of their bank and ample tools to find better treatment.
Neither outcome is good for financial institutions. But what can they do about it?
Learn more:
- Rate Wars: How Digital Banks Keep Pushing CDs Higher
- Credit Unions Bulk Up in Commercial Lending and Home Equity, Along with CDs
- Deposit Competition Is On, But Should CDs Still Be the Go-To?
Relationships, Engagement and Deposit Bundling
Some banking executives will privately say, “There’s no loyalty in deposits anymore.” But how can depositors have no loyalty when banking is about relationships?
Jason Henrichs, chief executive officer at Alloy Labs Alliance, tells an illustrative story. “One of our bank CEOs tells a story from 2023 in which a woman came into the branch upset because she learned what she was getting paid on her deposits and had compared it to rates from AARP,” he says. “It was the CEO’s mother. If your mother’s not happy, I don’t know if any amount of coffee, cookies, golf, or shaking hands will maintain other deposit relationships.
“If you don’t want to compete on rate,” Henrichs stresses. “Institutions must ask: What other value do we bring? We need to look to personalization.”
That word, personalization, can sound like an institution needs lots of data, technology, and a product roadmap to get started. Banks and credit unions should be developing all three, but they can start with a surprisingly simple tactic: Try asking good questions.
For those that have no CDs with the institution, are they happy with their current CD? Institutions are already finding opportunities to refinance other institutions’ CDs in this way.
For those coming to term on their CD, what are they saving for? A home down payment, school savings, funds for a renovation, or a new car—each objective has a date on their calendar in the future. Consider offering CDs customized to those dates. “Knowing when their savings are needed gives institutions the ability to help people ladder deposits,” Stanley observes. “We recommend using customized maturities so they can schedule term dates to fit their expectations.”
For those coming to term on their CD, are they aware of bundling options? “Consumers come to a clear and predictable decision at CD maturity about where their money goes next. To bankers, that often becomes the no-win match or lose scenario,” Stanley says. “Alerting them to ways your staff can help with bundling a new CD with a promotional withdrawal-only account can result in retained customers and managed deposit cost at renewal.”
Savers are just normal people. Yes, they will pursue their best interest in yield, but they will also bend on yield when they perceive value in relation to an institution. Retaining deposits at favorable prices is about engaging them with competitive pricing and solutions paired with the problem they’re trying to solve.
Unlike CFOs who negotiate rates as finance professionals, people managing their finances are faced with a chore — not unlike doing their taxes. It’s an expensive chore in terms of time and stress. Make the relationship real through engagement, and savers will reward institutions for the stress relieved. That’s how institutions retain CDs during the coming waves of maturing time investments without blowing up their cost of funds.