Driving Deposits: How to Outpace the Industry

Although we’ve watched deposit growth in recent years respond to some unusual fluctuations – such as COVID, incentive-driven increases, the subsequent spending down of those accumulated funds and reactions to bank failures – it appears to have stabilized and returned to pre-pandemic levels with balance growth essentially flat. According to the American Bankers Association (ABA), when observed over a four-year horizon, retail and small business deposits grew at a 2.6% compound rate, a pace near the norms of the past 25 years. According to PRI’s Director of Customer Experience Tom McGill, today’s salient question for community banks is how to outpace that overall industry rate. While much of the focus remains on product design and product distribution – both of which are essential – there are additional steps that community banks can take to help drive deposit growth. In this blog, McGill expands upon some of the tactics and Key Performance Indicators (KPIs) appropriate to effectively manage a thriving deposit portfolio.

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Let’s Talk Tactics: 8 Ways to Grow Deposits

Community banks, by virtue of their role in the communities they serve, offer several opportunities to improve deposit growth. While the organizational focus will vary from bank to bank and requires an honest assessment of the institution’s capabilities, McGill outlines 8 general ways to grow deposits in today’s competitive climate.

1. Leverage Relationship-Based Sales. Most experts agree that relationships are a core strength for a community bank and leveraging that strength to improve deposit growth should be a pillar of the institution’s strategy. 

One way to leverage relationship-based sales is to focus on add-on products that meet specific customer needs. There is good evidence to support the theory that a checking account plus one additional product increases the “stickiness” of the customer relationship. However, the additional product must be both “real” and useful to the customer, not a meaningless add-on, according to McGill. This strategy requires the bank’s frontline team to widen their perspectives to include a more sales and marketing-oriented mindset. 

“Successfully delivering on this strategy requires a long-term commitment to training and developing customer-facing staff on more than just the operational components of their roles,” McGill said. “These frontline interactions are the natural space to both gather intel about your customers’ needs and habits and offer real solutions that will strengthen your relationships and ties to the community.” 

2. Segment and Price Strategically. Intelligent market segmentation and strategic pricing allow the institution to target the right customers with the right products at the right time. McGill suggests using analytics to differentiate between customers and tailor your approach and marketing to each segment, depending on their unique needs. And as the institution designs new products, McGill suggests keeping them simple.

“Resist the temptation to over-engineer products,” McGill said. “Stick with and implement a product design that emphasizes simplicity so that bank staff and customers can easily understand the value exchange inherent in any product purchase.” 

3. Enhance Digital Account Opening. McGill said it is vital to a deposit growth strategy to optimize the digital nature of today’s banking and ensure the customer experience is smooth, fast and seamless – every single time.

• Invest in frictionless digital onboarding. It should be mobile-first facing and require 5 minutes or less to become a customer.  
• Offer remote deposit capture and digital funding options to attract deposits from outside immediate footprint. 

4. Target Small Business and Commercial Deposits. Community banks should recognize that lending customers can be their best source for deposits, McGill said.

• Develop low-friction business checking products with bundled treasury features.
• Specifically target the Small Business and Commercial segments with bundles appropriate for each.

5. Community and Affinity Marketing. Community banks are part of the fabric of a local community, and that is a strong differentiator from regional and national banks. Make the most of it by leveraging the bank’s local presence through school partnerships, employer relationships and nonprofit sponsorships that tie back deposit campaigns at the institution. McGill suggests positioning deposit accounts as a good way to support the local community. 

6. Expand Specialty/Out-of-Market Deposits (Selective). Use listing services, reciprocal deposits or targeted CDs for balance sheet management. This is a useful approach when local markets are tapped out but should be balanced with core deposit focus.

7. Embed Financial Wellness Tools. Partnering with fintechs that, for example, offer savings goals, credit monitoring and gamified savings plans will help attract younger, digital-first depositors. 

8. Promote Safety and Trust. Differentiate from larger banks by stressing insured deposits (FDIC coverage), personalized service and strong flight-to-stability messaging. Community banks can highlight that they are an embedded part of the local community and are there to stay. 

Going Deeper: Metrics that Matter

Community Banks tend to manage deposits and deposit growth at a very high level, focusing only on things like new accounts sold and overall deposit growth. The remainder of the measures are left to the ALCO to monitor. Utilizing more extensive metrics at the deposit generating level – closer to the customers – can provide more insight and allow for more rapid changes in strategy.

There are three categories of metrics that banks can consider calculating, which allow them to go deeper and make better decisions about growing deposits:

1. Financial Metrics

• Deposit Growth Rate (% YoY). Overall and segmented by retail, business, time deposits and non-interest-bearing.
• Cost of Funds (%). Trend line vs. peer averages (tracks impact of rate competition).
• Deposit Beta. Reveals how sensitive deposits are to rate changes (tracks stickiness vs. hot money).
• Deposit Mix Ratio. Percentage of non-interest-bearing vs. interest-bearing deposits.
• Liquidity Coverage Ratio (LCR). Ensures adequate high-quality liquid assets.

2. Customer/Relationship Metrics

• Customer Primacy Ratio. Percentage of households/businesses with a checking account, plus at least one other product (loan, card, savings).
• Business Deposit Penetration. Percentage of commercial clients with treasury/operating accounts tied to deposits.
• Digital Account Opening Conversion Rate. Percentage of initiated applications completed successfully.
• Deposit Retention Rate. Percentage of balances retained over 12 months, adjusted for seasonality.
• New-to-Bank Deposit Acquisition. Percentage of deposits from new households/businesses, not just existing customers.

3. Operational/Campaign Metrics

• Time-to-Open (in minutes). Average digital account opening completion time.
• Community Engagement Deposits. Balances tied to partnerships with entities like schools, nonprofits and local employers.
• Incentive Uptake. Percentage of customers adopting relationship rewards or bundled products.
• Cross-Sell Ratio. Average number of products per deposit customer.
• Marketing Campaign ROI. Deposit balances generated per dollar spent on campaigns.

Sharing these KPIs monthly and presenting them as a dashboard demonstrates the health of the deposit gathering business. The dashboard also serves as an educational tool to help deposit leadership share the story with the broader base of constituents. Taking a deep look at the bank’s metrics in this way allows leaders to pinpoint the growth opportunities for deposits and tackle those areas as a team with products and services, along with effective marketing and sales initiatives to accomplish goals. Results can then be measured over time and adjustments made.

Although consumer balance growth is essentially flat and retail and small business deposits are growing at a normal rate, there is room for most community banks to grow their deposit portfolios. Leveraging their unique positions in local communities can lead to new tactics for growth and taking a more robust look at metrics can lead to innovative approaches and strategies that will look different from bank to bank. Knowing where to look for new growth opportunities can save time and propel the institution to the next level quickly.  

About our experts

Using his more than 45 years of banking experience, Tom McGill is a retail banking expert with a track record of solving problems and achieving measurable objectives. He is successful at integrating seemingly disparate functions and personalities through collaboration and consensus building across a variety of professional disciplines. His expertise in electronic banking, payment systems, debit and credit cards, product development, customer experience, marketing and conversions make him an asset to many projects with financial institutions.

Resources:

Deposit Growth Strategies for Today, Tomorrow, and Forever – PRI

Deposits: The top profitability lever for retail banks’ CEOs – McKinsey & Company

2025 Community Bank CEO Outlook: Balancing Between Deposits and Loans – Independent Banker

PRI specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to propel growth and improve profitability.