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The banking industry is no stranger to cyclical fluctuations. Whether it is the ebb and flow of mortgage refinancing or the seasonal surge in agricultural lending, financial institutions are accustomed to predictable shifts. However, a massive “term tsunami” is currently approaching, as trillions of dollars in certificates of deposit (CDs) prepare to mature and renew.
Recent data suggests that by the end of 2025, approximately $2.37 trillion in bank CDs will be up for grabs as savers search for their next investment vehicle. Credit unions are facing a similar trajectory, with an estimated $497 billion in share certificates maturing through late 2024 and 2025. By 2026, the total volume of repricing deposits could swell to $2.8 trillion.
The Challenge of Short-Term Habituation
A year ago, many banks and credit unions incentivized short-term deposits to manage interest rate risk. By offering the highest yields on maturities of 12 months or less, they successfully attracted liquidity but also habituated consumers to chase short-term rates. This creates a strategic challenge: how can institutions retain these funds or attract new ones without simply engaging in a race to the bottom on pricing?
While the competition for standard terms is fierce, this repricing ritual presents a unique opportunity for growth if institutions look beyond interest rates alone.
Data-Driven Insights: Fishing Outside the “Standard Term” Pond
The 12-month CD remains the most popular choice, accounting for roughly 73% of demand for standard terms. Because of its popularity, price competition is intense. Top-tier banks and credit unions often pay a significant premium over Treasury yields to capture these depositors.
However, consumer demand is more nuanced than it appears. Market data indicates a significant appetite for non-standard maturities:
- 6-month CDs: Account for over 28% of depositor interest.
- 7 to 9-month terms: Collectively represent nearly 22% of demand.
- Custom maturities: Offer a way to meet specific consumer needs with less local competition.
By offering non-standard terms—such as a 7-month or 8-month CD—financial institutions can attract savers who have specific financial timelines. These depositors are often less motivated by the absolute highest APY and more focused on product fit, allowing institutions to acquire customers at a lower all-in cost of funds.
The Hidden Profitability of Digital CDs
When evaluating the cost of CDs, many executives focus solely on the interest rate. However, when CDs are originated through digital channels, the “all-in” cost can be lower than traditional liquid accounts for several reasons:
1. Lower Fraud Risk
Unlike checking or savings accounts, CDs typically involve fewer transactions, significantly reducing the risk of fraud. From a risk-management perspective, the CD is often the most stable and secure deposit product in a digital portfolio.
2. Operational Efficiency
Digital account opening reduces the overhead associated with physical branch visits. Furthermore, the higher average balance of a CD means the operational cost per dollar deposited is often much lower than that of a high-volume, low-balance checking account.
3. National Reach, Local Trust
Smaller institutions are using digital marketplaces to connect with consumers outside their traditional geographic footprint. By providing a seamless digital experience, banks can build trust with a new demographic that values convenience and security over brand name alone.
Building Durable Growth from the Tsunami
The upcoming “term tsunami” should be viewed as more than just a liquidity event; it is a primary window for new customer acquisition. Institutions that use data to offer the right maturities at the right time can convert “rate shoppers” into long-term clients.
By focusing on product customization and digital efficiency, banks and credit unions can turn a predictable repricing cycle into a sustainable engine for growth, proving that in the current market, the right strategy is just as important as the right rate.
Source: thefinancialbrand.com