Bank Deposits Drained? Why Personalized Products, Not Just Messages, Are the Fix

For years, banks focused heavily on personalizing customer messages to boost engagement and loyalty. Yet, despite these efforts and significant investment, a critical problem persists: deposit attrition. Industry data reveals that personalized marketing, while improving customer communication, has largely failed to curb the outflow of funds, as depositors continue their relentless pursuit of higher yields. This ongoing “great deposit regression” demands a deeper, more structural solution than just better emails or mobile alerts.

The core issue isn’t a lack of effort in personalization, but rather its scope. While helpful for engagement, personalized marketing messages are easily replicated by competitors, including agile fintechs. They don’t create lasting differentiation or address the fundamental desire for better returns. If banks truly want to attract and retain deposits, the next frontier isn’t just personalized communication; it’s personalized deposit products through advanced customization.

Understanding the Great Deposit Exodus

The banking sector has witnessed an unprecedented shift in deposit trends. Unlike pre-2021 periods where total deposits consistently grew, the landscape today is vastly different. Every major category of bank deposit has shown vulnerability, with even popular interest-bearing accounts failing to reclaim their 2021 peak levels. This significant decline marks a turning point in banking history.

This deposit exodus is hitting various product types differently:

• Savings and Money Market Accounts: Once considered stable, these accounts are now highly susceptible to “rate-harvesting.” Fintech platforms have automated the process, making it effortless for depositors to move funds to institutions offering even marginally higher yields. What was once “sleeping money” can now become “hot money” instantaneously, flowing out of traditional banking faster than ever before.
• Checking Accounts (Non-Interest Bearing): Even in the realm of checking accounts, traditional banks face stiff competition. Leading fintechs have demonstrably outpaced the largest banks in DDA (Demand Deposit Account) growth, attracting new customers with streamlined experiences and often integrated financial tools.
• Certificates of Deposit (CDs): CDs were among the first deposit products to decline after the Great Recession. Their inherent rigidity—fixed terms, punitive early withdrawal penalties—made them less attractive. Many in the industry mistakenly declared the CD obsolete, not realizing that this inflexibility would soon plague other deposit offerings.

What Depositors Truly Want (and Banks Often Lack)

To understand where deposits are going, one needs only to look at the surge in household purchases of U.S. Treasuries over the last two and a half decades. This growth, once “below zero” for households before 2008, now surpasses even banks’ own holdings of Treasuries. The reason is simple: Treasuries typically offer higher yields, can be tax-exempt, and often possess greater liquidity, sometimes even appreciating in value as rates decline. No traditional bank deposit product offers this combination of benefits.

It’s an open secret within banking: when institutions seek risk-free returns for their own capital, they don’t invest in their own savings accounts, CDs, or money market funds. They turn to instruments like U.S. Treasuries because of their superior returns and flexibility. This highlights a fundamental disconnect: banks offer depositors products they themselves wouldn’t choose for optimal investment.

Beyond the App: The Uber vs. Bus Ride Analogy

Consider the difference between a bus ride and an Uber ride. While many city bus services now boast excellent mobile apps, they can’t take you to any specific address. The app enhances the experience, but it doesn’t fundamentally change the service’s destination flexibility. Similarly, banks have invested heavily in mobile apps that rival fintechs in functionality. However, if the underlying financial products remain rigid and offer limited destinations (financial outcomes), even the best app won’t suffice.

The banking industry largely fails to provide an “Uber-style” equivalent for deposit products. This creates frustration when customers receive “personalized” marketing messages from a bank that still can’t offer them the precise product features they need. Crucially, the technology to offer greater product customization often already exists within current core systems. The rigidity is often a choice, not a technical limitation.

Real Product Customization: What It Looks Like

Imagine a banking experience where deposit products genuinely adapt to individual financial goals. Here’s how banks can move beyond generic offerings:

• Custom CD Maturity Dates: Allow depositors to select a CD maturity date that aligns precisely with a specific life event or financial goal, rather than defaulting to standard fixed terms.
• Hybrid Savings-CD Structures: Offer bundled accounts that combine the flexibility of a rainy-day fund (with some immediate access) with the locked-in yield benefits of a short-term CD. For instance, a competitive rate on a savings account linked to the opening of a CD, but with limits on subsequent deposits.
• Fairer Early Withdrawal Terms: Move beyond punitive, fixed penalties. Introduce terms for early withdrawals, either whole or partial, that reflect actual market conditions, potentially charging only for actual damage or even rewarding the client if the withdrawal benefits the bank. This mirrors the tradability of a Treasury security.
• Daily CD Market Values: Provide depositors with a transparent, daily market value for their CDs, allowing them to understand the current worth of their investment, similar to how bond values are tracked.

Your Bank, Your Product Advantage

Fintechs have excelled at distribution and creating modern user experiences, successfully disintermediating banks. While traditional institutions have made strides in these areas, they’ve often competed with one arm tied behind their back – focusing solely on marketing personalization, a battle where fintechs often hold an advantage.

However, banks possess a unique, powerful lever: direct control over the core financial product. While non-bank competitors are now scrambling to acquire banking charters to offer more fundamental products, established banks can leverage their existing infrastructure to innovate on the product itself. This doesn’t necessarily require massive technology overhauls but rather a strategic shift in how deposit products are designed and offered.

By embracing true deposit product customization, banks can stem the outflow of funds and reclaim market share. Personalization isn’t dead; it simply needs to evolve. It’s time for banks to take personalization where few can follow: to the very core of their deposit offerings, creating tailored financial solutions that truly meet the diverse and evolving needs of their customers.