Steps to Identifying At-Risk Deposits

Retaining deposits in a rising interest rate environment will continue to be a top challenge for credit unions this year and into 2024. To keep liquidity in-house and remain competitive, credit unions will need to increase what they pay for deposit relationships and elevate members’ banking experiences. Today’s consumers are more aware of their options and don’t shy away from switching financial institutions for better offers and experiences elsewhere. To keep members happy and avoid spending more money acquiring new members, credit unions need a plan to identify and retain their at-risk deposits.

Identifying at-risk deposits and building a plan to retain them starts with transforming member data into meaningful insights. Credit unions often sit on large volumes of raw, disparate data, which is highly variable and not actionable. The situation worsens as they add fintech solutions to their technology stacks. Building a data environment to analyze that raw data and consolidate it into a clear view allows credit unions to understand the member’s entire banking relationship. From there, credit unions can determine each member’s monthly spend, reserve and at-risk deposits.

The monthly spend can be determined by looking at fixed expenses (e.g., mortgage or auto payments, utility bills, etc.), and the member’s 12-month average monthly transaction amount (i.e., lifestyle expenses). According to a recent LendingClub report, 60% of American adults live paycheck to paycheck, meaning they only have their monthly spend, or less, in their bank accounts. Recently, a White Clay bank client corroborated this, sharing that 53% of their customers had less than one month of spending in their bank accounts. These percentages will likely increase as we move into 2024 and inflation forces consumers to dig deeper into their savings for the products and services they’ve grown accustomed to.

The reserve balance – if any – is the money that members have in their account for peace of mind, generally averaging two times the monthly spend. The same White Clay client said 36% of their customers had three-plus months of monthly spending in their bank accounts. Most consumers will keep both their monthly spend and reserve balances within their primary financial institution but could be compelled to move any remaining balance elsewhere.

The remaining balances are at-risk deposits, sitting in the accounts of a small percentage of members. Credit unions need to focus on retaining these, as members might choose to move them to another financial institution that offers better rates or discounts. The same White Clay client had just over 3,000 customers with remaining balances. Using segmentation, they were able to identify the top 300 customers that held more than 70% of the institution’s at-risk deposits and proactively target those account holders.

To retain at-risk deposits, relationship managers need to prioritize communication with those members and find out what their current and anticipated needs are. They should then issue offers specifically targeting those accounts – for example, better rewards, temporary discounts and higher interest rates. These conversations could also provide opportunities to expand those relationships into other banking products like loans and credit cards. Credit unions’ secret sauce – their high level of service and personalization – and competitive rates are the market differentiators they need to leverage at this time. Offering members great experiences now might also incentivize them to move their secondary deposit relationships (i.e., the deposits they might have in other financial institutions or fintechs) to their primary financial institution.

Cleaning, analyzing and segmenting the member data they already have will enable credit unions to get a comprehensive view of all their member relationships. This will help them identify where their deposits sit and make evidence-based decisions to retain those balances. Determining where deposits sit is also a key component of building and executing a deposit strategy, which credit unions should do to build resiliency ahead of a potential recession.

Mac Thompson is Founder and President at White Clay, a Louisville, Ky.-based provider of data and consulting services to banks and credit unions.