Three Creative — And Successful — Tactics for Growing Deposits
Deploying novel approaches to growing deposits can be risky, but three institutions are finding success with lesser-used tactics. Here's a closer look at what they did and why it worked.
By Matt Doffing, Senior Editor at The Financial Brand
Why has deposit competition become so fierce? If you’re watching the machinations of the Federal Open Market Committee, you have an answer: Interest rates. And yes, higher interest rates brought more depositors into the market during the past two years, and many banks and credit unions responded with higher rate offerings.
The banking industry responded to increases from the Fed by offering higher rates because of a unique feature of banking: Its liabilities – deposits – are owned by people who may also drive additional revenue by utilizing banking’s primary asset – loans. Get the deposits, then loans and non-interest income will follow. And, if loans follow on the deposits, the institutions can monetize them, even when it pays a higher rate to acquire them.
How have institutions gained depositors, though, when so many compete for the same customers, often with identical offerings?
We talked to three institutions that went their own way, with notable successes.
Grow Where There’s No Competition
Building branches has been the go-to way to grow deposits for decades. Yet, banking has seen a decline in branch counts over the past 10 years as electronic channels have emerged and in-branch transaction counts have waned. Many institutions are not abandoning branches wholesale; they’re just consolidating investments into what they consider higher-potential markets.
These trends, though, created an opportunity for a more contrarian approach to growing deposits: Enter communities no other institution is invested in – even communities recently exited by other institutions. The approach has allowed Premier Community Bank, Marion, Wisc., to nearly double in size to $550 million in about five and a half years.
"During the last 12 years, we’ve grown by six locations, purchasing five from other organizations," Tom Pamperin, president/CEO at Premier Community Bank, told The Financial Brand. "The most recent was in a community of about 1,400 in population where all the other institutions had left."
Why pursue that kind of growth strategy? Low-or-no competition in those markets allows Premier Community Bank to enter the market economically and serve as the primary banking provider. The selling institutions often had a location in town for the deposits but made few loans in that community, preferring to use funding on larger commercial loans elsewhere.
"We have a kind of information-junky culture here, and so we know that within five years of a bigger capital investment in an office, we can double the size of the branch."
— Tom Pamperin, Premier Community Bank
Why pursue that kind of growth strategy? Low-or-no competition in those markets allows Premier Community Bank to enter the market economically and serve as the primary banking provider. The selling institutions often had a location in town for the deposits but made few loans in that community, preferring to use funding on larger commercial loans elsewhere.
"We’re a community bank, and the communities we are now a part of are looking for more from us," Pamperin says. "These were ‘fixer-upper’ type locations. Usually, that meant we acquired the locations and deposits on sale, and the seller retained any loans from that location if there were any."
The branches were fixer-uppers in the literal sense as well. Premier Community Bank is now investing several million dollars into a new building in one of the markets and renovating another. The locations needed improving, but there’s a bigger picture for the bank.
"Those communities were looking for more… we have investment services and an insurance agency," Pamperin says. "We needed our staff to be able to come into town and meet with clients. We have a kind of information-junky culture here, and so we know that within five years of a bigger capital investment in an office, we can usually double the size of the branch."
Now that its deposits have yielded more loans and increased revenue from investment and insurance services, Premier Community Bank plans to add deposit experts who can engage municipalities and utilities as potential customers. It also plans to use technology to reach out farther into the areas surrounding branches.
Read more:
- Timing, the New Way to Outcompete Peers for Time Deposits
- How Can Banks Push Back Against Mounting Margin Pressure?
- As Rates Decline, Deposit Costs Must Decline Also, Right? Think Again.
Invest in the People Who Service Depositors
Since interest rates began rising in mid-2022, more and more deposits have come to their institution looking for "the best rate." What if those rate shoppers don’t see a top-of-market rate advertised? They tend to engage frontline staff, who often end up in the hot seat because most digital banking platforms and mobile banking apps cannot service negotiations.
What do these negotiations tend to look like? Often, it becomes a match-it-or-lose-it scenario with no good outcome for staff or the institution. Mid Oregon Credit Union wanted to change the negotiation dynamic to a consultative dynamic, but it had to invest in something that often runs against the banking grain: Equip the frontline with training and tools to create more options within what were match-it-or-lose-it scenarios before, especially for certificates.
"Zero-sum negotiations become adversarial, and the employee also feels their hands are tied. They have nothing to give," Kevin Cole, President and CEO of Mid Oregon Credit Union, told The Financial Brand. "Staff and leaders can be hesitant about frontline personnel having greater flexibility in their engagement with members, so we made it simple: Their job is to get the deposit."
Empowering the frontline is not common in banking, and while it sounds nice to provide the frontline that flexibility, how did Mid Oregon do it without blowing up its cost of funds? Many retail front liners had not seen an interest rate environment of 5%, nor have they had any preparation to customize products, such as the credit union’s certificates, especially when face-to-face with members.
"We provided them a system where we control the maximum rates in May of 2024, which allowed staff more flexibility because the credit union sets the max rates; we always know we can live with them," Cole says. "I visited the branch managers and explained, ‘If you can do better than max rate, we’ll be better off, but your job is to get the deposits first and foremost.’ Once people heard that, they had a comfort level."
Before 2024, Mid Oregon trained staff to cross-sell deposit products. With more certificate acumen, Mid Oregon is developing premium checking account members – depositors with an average checking account balance of $27,000 – into certificate users.
Premium interest accounts tend to bring Mid Oregon an additional $20,000 to $50,000 in discretionary savings. So, the Bend, Ore.-based credit union began offering a 6% certificate with a 12-month term. A rate like that would win some depositors over, but how would the credit union keep them at their renewal?
The key is how Mid Oregon supports staff. While some members renew, not everyone loves the rates available compared to that initial 6% rate. What happens then? "We’ve trained our frontline, but we’ve also equipped with products that support the member needs," Cole says. "Instead of match-it-or-lose-it, we offer them the opportunity to move their certificate funds to a savings account with a strong rate. They gain liquidity, and we keep serving as the home for their savings."
Cole says the credit union is now focused on growing its premium checking even more. With the credit union’s focus on empowering those who serve members, it has a good chance of attracting significant volumes of discretionary savings as well.
Promoting Deposits as a Gift
According to survey results published by CD Valet, a deposit marketplace founded by Seattle Bank, nearly three-quarters (72%) of gifts given by parents and grandparents are in the form of cash, checks, gift cards, or investments.
After savings bonds, the gift of choice for 42% of respondents, and 529 College Savings Plans, preferred by 29% of givers, certificates were the preferred investment gift by 25% of participants. Serving the parents and children, as well as grandparents and grandchildren, who give or receive certificates as an inheritance or as financial help, is a significant opportunity for banking institutions. Mary Grace Roske, Head of Marketing for CD Valet, told The Financial Brand.
"Traditionally, giving money was seen as an impersonal and even lazy holiday gift," Roske says. "Those days are gone, as their ease and flexibility make financial gifts high on everyone’s list to give and receive."
How can institutions grow deposits by serving this potentially untapped opportunity in their market? It could be as simple as educating depositors that the institutions can help with these types of gifts.
Depending on the amount in the certificate, depositors can provide funds annually for college books or groceries while retaining their savings to reinvest in another certificate. "CDs’ popularity has grown in recent years," says Roske. "Higher interest rates have delivered savers better returns, and given that federal deposit insurance safeguards the risk to principal, CDs make an ideal financial gift."