Which deposit-raising tactics are bad, and which are good?

When financial institutions want to raise deposits or prevent attrition, they often turn to tactics they have used before without assessing them strategically based on current market conditions. No tactic is 'bad' in and of itself. But most have aspects that can become problematic, depending on the circumstances. Here's what to consider when weighing your deposit-raising options.

Frontline staff at branches across the country are getting a lot more ad hoc pricing requests than in the past. Decisionmakers, in turn, are spending more of their day approving exceptions for depositors bargaining for a better deal.

Seeking respite, financial institutions tend to consider a host of “creative” strategies to retain or attract deposits. But they should wade in carefully.

These tactics are not silver bullets. Many, including implementing relationship pricing, providing depositors a rate based on the size of an account, or offering odd-term maturity specials, can be counterproductive, depending on the situation. Others, such as ad hoc pricing, are problematic.

And two tactics — new-money-only rate specials and brokered deposits — can be outright destructive to future profitability.


continue reading »