Rising Deposit Competition: How Banks Can Boost Deposit Volume and Cut Costs Without Raising Rates

Banks and credit unions face mounting pressure as deposit markets grow more competitive. Marketing teams hold the key to gathering more deposits at lower costs — without touching pricing.

For years, finance, sales, and marketing have been locked in a tug-of-war over deposits. Finance aims to protect margin. Sales pushes for a rate it can actually sell. Marketing wants to drive growth but must operate within the pricing boundaries already set.

That tension is becoming far more consequential as industry signals point to intensifying deposit competition. The encouraging news? Marketing departments can help ease that friction, often entirely within their institutions’ existing pricing and product framework. Sales can follow suit. Together, these two departments can double deposit volumes while also unlocking significant savings on deposit costs — a rare and powerful combination.

Key Takeaways

• Deposit pressure is likely to intensify, not ease. Higher long-term yields and expanded lending capacity from lower capital requirements could heighten competition for deposits, making it harder for institutions to contain funding costs.
• Every institution needs a deposit competition strategy alongside its pricing strategy. Waiting for funding-cost relief is an increasingly risky bet as depositors grow more sophisticated and deposit markets become more efficient.
• Not every depositor is a rate shopper. Segmenting sleepers, curious depositors, and true rate shoppers helps institutions avoid overpaying for money that could have been attracted or retained at a lower price point.
• Marketing needs more leeway, not pricing control. Product pairings, customized non-pricing offers, and strategic handoffs to a trained frontline give marketing more tools to gather deposits within existing pricing rules.

What’s Driving Future Increases in Deposit Competition?

A bank’s funding cost — what it pays depositors — generally tracks the Federal Reserve’s target rate. Longer-term assets, and the alternatives depositors can pursue, follow the entire yield curve. For a year, many bankers waited for “rates to come down” to relieve the pressure. The overnight rate did drop. But the term money everyone competes for actually became more expensive, not cheaper.

The yield curve is no longer inverted — it’s upward-sloping again, recently ranging from 4.03% at three months to 5.37% at thirty years. The Fed controls the short end; the rest reflects what the market believes about future debt conditions.

On top of that, reduced capital requirements for banks will inject more lending capacity into the marketplace, adding fuel to an already blazing competition for deposits.

Key insight: The uncomfortable question for banks and credit unions already struggling with deposit costs: If finance refuses to raise rates, sales cannot negotiate on pricing, and marketing is stuck with cookie-cutter offers — what exactly will motivate depositors to choose your institution over the competition?

Why Rate Always Becomes the Battleground

For decades, executives have embraced an “accept that banking is commoditized” mindset around deposits. Banking is indeed one of the most commoditized industries, but there are two reasons that reality can become an excuse for inaction when it shouldn’t be:

First, banking felt even more commoditized than it truly was after 2008, because pricing had almost no bearing on where depositors parked their cash. It became so common for depositors to be indifferent toward discretionary savings that bankers actually cited “having too much cash” as a mutual challenge.

Second, on the surface it seems logical that the highest pricing will attract the most volume in a commoditized industry — but the data proves otherwise. One reason: product pairings and customizations are not necessarily commoditized in depositors’ eyes.

Institutions can hardly be blamed for accepting commoditization because, in a price-driven market, they largely compete against each other. The silent backdrop, however, was that the deposit market was traditionally about as inefficient as a market could be. Significant friction (by today’s standards) and a lack of depositor sophistication did the heavy lifting in making deposits a profitable funding source.

What has been described so far explains institutions’ wait-and-see approach to their deposit business in recent years. That approach used to be a strategy. Now it’s a risky bet. Industry conditions are unlikely to offer relief; deposits are more commoditized; depositors are more sophisticated than ever; and deposit markets are far more efficient.

Key insight: Pricing decisions will always be tied to the balance sheet. But institutions must begin running a deposit competition strategy alongside the pricing function — starting small, in the sales and marketing departments.

Respecting Pricing While Competing for Deposits

Bankers will sometimes say loyalty is dead. But loyalty never kept most discretionary savings in place. Inertia did. Depositors left money where it was, rolled maturities without shopping, and quietly funded the institution at below-market rates. That behavior was the load-bearing wall of deposit margins.

Depositors can be classified as “sleepers” — the ones who don’t move. But a more useful way to segment the deposit base is into three groups: sleepers who never budge, the curious who may move, and rate shoppers who move purely on price. The costly default at most institutions is to build campaigns, frontline scripts, and pricing as though everyone belongs to the third group. New depositors then tend to receive a rate before anyone has established whether price is even driving their decision.

That default is expensive. Leading with rate raises your funding cost on money you may have attracted or retained at a lower price point. It invites depositors to shop, introduces price to the curious, and wakes up sleepers. And it drags the existing book toward a new, higher, more painful number — a cost that exceeds what most institutions realize.

Elevating Marketing Without Changing Its Authority

Marketing operates across numerous channels — the institution’s website, email campaigns, digital account opening, direct mail, paid media, and existing-customer communications. How the strategy works will vary by channel, but three core practices can give marketing a larger role in gathering deposits without handing it pricing authority.

1. Present a Relevant Companion Offer

The first practice may also be the simplest: present a relevant companion offer alongside the deposit product a customer is already considering or opening. Many institutions call these “companion savings accounts,” and they can double the volume of deposits originated through marketing conversion.

Key insight: Companion savings accounts require little marketing explanation and minimal additional complexity for the frontline banker. The depositor buys a CD, and that eligibility event allows them to open a high-yield savings account paying a rate comparable to a CD. The more critical question is how the offer is targeted. Marketing must avoid unnecessarily waking up existing low-cost “sleeping” deposits by broadly promoting higher-yield savings options to customers who are already content.

Used selectively, the pairing can materially change the economics of account origination. A customer intending to open one CD can be given a second place to move funds at the same moment — creating a path to doubling deposit volume at origination while converting a single-product CD customer into a two-product deposit relationship in one move.

2. Customize the Deposit Experience, Not the Price

A second opportunity is letting marketing customize non-pricing elements of the deposit offer and the shopping experience.

Most institutions still present deposit products in rigid packages: a promotional term, a handful of standard maturities, and a static rate table. But the customer experience doesn’t have to stay that limited.

Consider maturity dates. Rather than forcing every depositor into a 6-, 12-, or 24-month box, an institution could let the customer choose the deposit maturity date. That is not especially radical by the standards of the broader retail economy. Consumers routinely choose their airplane seat, configure a vehicle, select delivery timing, or modify other purchase elements. With today’s computing capabilities, banks can give depositors more control over product structure without changing pricing authority.

Marketing can also apply standard e-commerce practices to how deposit offers are presented online.

Key insight: Deposit rates are inherently time-sensitive offers, yet bank websites rarely present them with the same urgency consumers encounter elsewhere. If an offer is available only for a limited period, marketing can make that visible with tools such as a countdown timer that encourages the depositor to complete the transaction rather than leave and continue shopping.

If the first offer doesn’t result in an account opening, the interaction doesn’t have to end there. Marketing can use follow-up communications to re-engage the depositor, present another approved configuration, or slightly alter non-pricing elements to learn what’s preventing the customer from moving forward.

3. Build a Breakpoint Between Marketing and the Frontline

A defined breakpoint between marketing and the frontline gives the institution a practical way to treat sleepers, curious depositors, and rate shoppers differently.

Marketing channels don’t need to contain every possible rate-shopper offer. In fact, keeping those offers out of the standard marketing journey can help the institution avoid introducing price unnecessarily to depositors who may have accepted the public offer, a companion product, or a customized non-pricing feature.

Instead, marketing can use depositor behavior to determine when a handoff is appropriate. A customer who accepts the offer stays within the marketing journey. A customer who explores, hesitates, or continues shopping can be given additional approved options. When the depositor makes clear that price is the deciding factor, marketing can facilitate a direct handoff to a banker or frontline employee trained to work with rate-sensitive customers.

Key insight: That breakpoint does more than improve execution. It gives the institution a clearer map of how depositors are behaving across its channels — where sleepers convert without intervention, where curious depositors can be moved with product structure or messaging, and where true rate shoppers require a dedicated sales conversation.

The result is a cleaner division of labor between marketing and sales. Marketing can focus on gathering deposits at the institution’s established spread without flooding every channel with its most aggressive pricing. The frontline can concentrate on the smaller group of depositors whose behavior shows that price genuinely needs to be addressed.

Source: thefinancialbrand.com