The Case for a Deposit Retention Strategy 

Community banks have long understood that relationships are at the heart of their competitive advantage. Yet when it comes to deposits, many institutions devote considerable time and resources to attracting new balances while paying less attention to protecting the relationships they already have. In today’s increasingly competitive banking environment, that approach can be costly. 

According to PRI’s Head of Customer Experience Tom McGill, deposit attrition rarely happens all at once. Customers often begin moving their money elsewhere gradually, creating a diminishment that may not show up in the numbers until the relationship is already at risk. For community banks, the case for a dedicated deposit retention strategy is clear: Understand the signals, engage customers before they leave and use the strengths that have always differentiated community banking to maintain and deepen existing deposit relationships.

Deposit Retention’s Place at the Strategic Table

Banks commonly invest heavily in campaigns, promotions and new account acquisition, but protecting the deposit relationships already on the books can be more efficient and effective than continually replacing lost balances. According to McGill, deposit retention should be viewed as an executive-level strategic priority rather than an operational or back-office responsibility.

“Retention is strongly connected to profitability and customer lifetime value,” he said. “Losing a long-standing deposit relationship can unfortunately mean losing more than a balance. It can weaken the broader relationship and future opportunities to deepen it.”

Bain & Company’s often-cited research reinforces the claim that even modest improvements in customer retention can have a significant impact on profitability. It was found that increasing retention by as little as 5% could boost profits by as much as 95%.

Attrition Doesn’t Always Look Like Attrition

A customer doesn’t always make a sudden move when it comes to pulling the plug on their bank accounts — it can look more like a slow drain. The idea of account diminishment means that the customer may open another account elsewhere and gradually move money out rather than closing the deposit account immediately. Traditional reporting that focuses primarily on account openings and closures can miss this gradual movement.

“It’s the rearview mirror effect,” McGill said. “Instead of looking at a snapshot, start looking at the bigger picture of behavioral trends that indicate someone is starting their path of walking away.”

Some of these diminishment behavioral trends that banks can spot using their available data include: 

• Decreases in transaction activity
• Changes in balances
• Declining digital engagement
• Money moving to outside financial providers

Why Customers Leave — Know the Warning Signs

Research shows that there are three common reasons why your customers leave and take their deposits with them: fees, poor digital experience and poor customer service.

1. Fees, the #1 controllable driver

Mintel’s 2024 US Switching and Loyalty in Financial Services report found that 44% of consumers cite high fees as the primary reason for switching, with checking accounts seeing the highest switching rate at 23% of all account types. The J.D. Power 2024 U.S. Retail Banking Satisfaction Study confirmed that unexpected fees are one of the top threats to customer trust, with 13% of bank customers saying they are likely to switch institutions within the next year. For community banks specifically, this is particularly relevant. Fee structures that made sense a decade ago are now being undercut aggressively by digital competitors and neobanks offering no-fee checking.

2. Poor or inadequate digital experience

MX Research found that having a good digital and mobile banking experience has become “table stakes,” and financial institutions won’t even be considered if they don’t deliver on the digital experiences consumers expect. Among Gen Z consumers, 29% now consider a digital bank or fintech their primary checking account provider, up from just 11% in 2020. Millennials show similar trends. 

It’s also important to reduce friction as much as possible in the digital channels you do offer. According to FIS, 50% of customers will abandon a digital loan application if it takes more than three to five minutes to complete.

3. Poor customer service

Research by Personetics involving 5,000 global banking customers found that 63% reported their banks did not provide money management advice in the past three months, leading some to consider switching. This points to a broader issue that customers don’t just want transactions, they want guidance. Again, community banks can leverage their relationships to improve the kind of personalized experience their customers are asking for. 

Not every departure is preventable, of course. For example, according to a Bankrate-cited survey by Bank Clarity, relocation is the No. 1 reason customers switch banks, and 61% of people who have left their bank did so for reasons other than dissatisfaction with their current institution. This is a nuanced but important finding because it shows a significant portion of attrition is not necessarily preventable through product or service improvements. It does, however, argue for coming up with creative retention solutions such as having a robust digital/remote banking capability that gives you a shot at keeping relocating customers.

McGill says that in many cases, retention starts as soon as the account is opened. The best way to address attrition may be to prevent the relationship from becoming vulnerable in the first place. He recommends creating a more intentional onboarding experience to cement relationships early. Banks can design a purposeful outreach plan that will contact new customers at intervals that make sense. He cautions that the objective should be meaningful, relevant contact, not simply another sales opportunity.

Banks also should examine whether customers are being placed in products that fit how they intend to use their accounts, and McGill says moving beyond a one-size-fits-all product structure is important. Understanding what matters to the customer at account opening can prevent frustration six months later. 

“The best way to deal with diminishment or attrition is to get it right, out of the gate,” he said.

Again, onboarding and personalization are two areas where community banks can shine, using their relationship-based model to differentiate themselves.

Turn Data into an Early-warning System

Since many community banks do not have dedicated analytics teams monitoring diminishment behaviors, McGill recommends elevating deposit retention to a strategic level. Banks can use available data to identify accounts that are increasingly vulnerable.

“Seeing the data and understanding the behavior is key and will inform ways you can keep the customer,” he said. “It’s important to be asking the right questions.”

As we noted in PRI’s last blog Beyond the Hype: Practical AI Use Cases for Community Bankers, Artificial Intelligence is being used as a practical tool in banks to identify trends and answer exactly these kinds of questions. Rather than investing in an expensive enterprise-wide initiative, AI can now be used relatively easily by banks to:

• Develop their own models around their own data
• Establish regular data extracts
• Identify behavioral triggers and prioritize accounts by risk
• Create a repeatable process for determining the appropriate next action

The goal is not simply to collect more data. It is to turn existing data into insight and timely, strategic action. The ABA confirms that digitally mature institutions increasingly use data to personalize engagement and anticipate customer needs rather than simply react to them.

Building a Deposit Retention Framework 

McGill advises his clients to build upon a simple framework as they refine their deposit retention strategy. 

1. Identify vulnerability

• Determine which accounts show behaviors associated with attrition.
• Establish a way to prioritize accounts based on likelihood of leaving.

2. Create meaningful engagement

• Reach out based on what the customer’s behavior suggests they need.
• Avoid turning every retention interaction into a sales pitch.

3. Deepen the relationship

• Determine whether the customer has the right products for their needs.
• Look for opportunities to make the bank the customer’s primary financial institution.

4. Capture data and measure performance

• Track what interventions work.
• Monitor retention, engagement and relationship depth over time.

Every Interaction Either Strengthens or Weakens Retention

McGill says that deposit retention ultimately comes back to customer experience. Customer engagement begins with acquisition and continues throughout the relationship, and the goal is to translate better engagement into improved profitability. Consideration of the full customer experience must include: 

• Ease of doing business
• Consistency across digital channels
• Branch and contact-center interactions
• Responsiveness when problems arise
• Personalization

“Every interaction is either a reinforcer or detractor for loyalty,” he said. 

Don’t Wait for the Balance to Disappear

Ultimately, deposit retention should be treated with the same strategic importance as deposit acquisition. Community banks already possess a major retention advantage — strong relationships and local knowledge — but those advantages must be actively nurtured and maintained. The goal isn’t to prevent every customer from leaving. It is simply to identify the customers who are showing signs of disengagement, understand why and give the bank an opportunity to respond. Banks that combine relationship-based service with behavioral data and proactive engagement can protect existing deposits while creating opportunities to deepen the relationships they already have.

“My advice is to stop ignoring it,” McGill said. “It’s easier to monitor now than it ever has been. Get after it!”

Our experts

Using his more than 45 years of banking experience, Tom McGill, Head of Customer Experience, is a retail banking expert with a track record of solving problems and achieving measurable objectives. 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 

Driving Deposits: How to Outpace the Industry – PRI  

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

Beyond the Hype: Practical AI Use Cases for Community Bankers – PRI 

Retaining Customers is the Real Challenge – Bain & Co. 

How Leading Banks are Enhancing Customer Engagement – ABA Banking Journal

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.