How financial marketers can get creative with certificates of deposit

Traditional penalties on certificates of deposit represent sales blockers and often amount to meaningless threats. A fair-but-serious approach to these measures — introduced as rates slowly climb — may help differentiate your institution's term deposit offerings from competitors', and give you a leg up based on something besides just paying the highest interest rates in town.

An odd contradiction may be impacting your institution’s ability to raise deposits. Financial institutions routinely disclose substantial early withdrawal fees on deposit accounts — fees that, historically, they never really expect to collect. Yet in recent years many continue the fiction by increasing these highly theoretical fees.

Consumers hate even the threat of penalties. So for banks and credit unions the mention of penalties constrains new business development with both existing and prospective depositors. The words “substantial penalty for early withdrawal” are always present in the minds of current and prospective retail depositors, and rank in “popularity” with overdraft fees.

At least with overdraft fees, banks and credit unions have revenue to show. Has your institution’s early withdrawal penalty strategy helped it create and capture any value?

Recognizing this, some financial institutions are differentiating themselves from the crowd of insured depositories which threaten early withdrawal penalties fixed at X-months of interest or other static approaches to penalties. They have been replacing fear of discussing the fees with creation of an alternative version of time deposits that takes the punishment out of early withdrawal penalties.


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