From Reducing Interest Expense Isn’t Easy! How to lower rates without losing deposits, and why you might need to pivot, a presentation given by Curinos’ Adam Stockton, Managing Director, Retail, at ICBA LIVE 2025 in Nashville on March 11. Â
Raising and keeping deposits is always a delicate balance of demand for funds and pricing. How much does the institution need to satisfy its demand for lending, and how much is it willing to pay to meet that demand? In his presentation to community bankers, Adam conceded that striking the right balance is never easy, especially in a volatile rate environment, but he nevertheless offered considerations and strategies for achieving it.Â
Two things are clear. One, more than ever, retail bankers will need to be flexible and nimble when it comes to managing their deposits. Two, qualitative scans of competitive activity and educated guesswork are no longer viable options. Today’s environment demands data-fueled analytics that can provide up-to-date intelligence to stay ahead of the curve. Here are some of the key takeaways from Adam’s presentation:Â
1. Retail deposits used to grow no matter what—until they didn’t in 2020!  Â
The pandemic changed many aspects of American life, including the steady, predictable flow of consumer deposits. Stay-at-home behavior and an enormous infusion of cash from the federal government created a fourfold surge in deposits from previous years. It was followed by a substantial runoff that led to anemic deposit growth in the ensuing years. Only now has the market reverted to a semblance of pre-pandemic deposit flows. Â
Total Year-Over-Year Retail Deposit Growth
Source(s): FDIC Call Reports, Curinos Consumer Deposits Analyzer
2. Despite a series of Fed rate cuts, banks aren’t seeing interest-expense relief. Â
On the downside of a rate cycle, deposit betas generally lag actions by the Federal Reserve and are currently about 50 basis points higher than they were when the Fed began cutting rates. This dynamic has been particularly acute during this cycle because it was preceded by years of historically low deposit rates. The result is that more than half of all deposits are priced below 25 bp—in checking and low-rate savings—and many of them are remixing into higher-rate money market demand accounts (MMDA) and CDs. At the same time, acquisition rates remain stubbornly high while attrition of lower-rate products is putting upward pressure on portfolio rates. All this has led to frustration on the part of some bank officers that their own betas haven’t been as high with rates falling as they were when rates were on the rise. This, in turn, calls for the need to set realistic expectations for how much rate relief there may be, and how soon.    Â
Branch Bank Consumer Portfolio Rates
(All Products Interest Expense)​
Source(s): Curinos Consumer Deposit Analyzer, FRED | Note(s): Betas calculated using Federal Funds Target. Data is quartiled monthly based on acquisition rate. Simple averages displayed. ​
3. Deposits display price elasticity, but it’s not linear.  Â
It’s axiomatic that higher rates will generally attract and retain deposits and lower rates will not. But the relationship between price and volume is hardly linear. A wide swath of depositors falls within what Curinos calls the Area of Indifference (AOI), where customers display little or no change in their deposit behavior despite a change in rate. They may be perfectly happy with the rate they’re receiving, haven’t thought about alternatives, overlook the need for a higher rate because they value their banking relationship, or all three. Banks are well-advised to apply data and analytics to define the breadth of their AOI and then price deposits accordingly. To maximize margin, price with the market—to the left side—but avoid falling off the cliff. To emphasize acquisition, price competitively but not top of market (to the right), perhaps with one offer of a savings/MMDA product or CD (not both) to allow sensitive customers to switch.  Â
Typical Deposit Price Elasticity of Demand​
Source: Curinos Analysis​
4. What not to do: Pay above-average rates to anyone, anytime.     Â
To gain what some banks believe to be a competitive edge while at the same time being mindful of parity and fairness, they may offer the same above-average rate to all their customers. (We often hear, “We want to be above average but not near the top of the market.”) This is the worst possible scenario. To keep their offer affordable, it’s often not high enough to attract new customers or new money, but it is high enough to motivate their own customers to switch from DDA or low-rate savings into an MMDA. The lesson here is not to be above average to all. One, you don’t have to be—keep in mind the Area of Indifference. Two, being fair to each customer doesn’t mean having to treat them all identically or having to do so with rate. Â
AverageBank Wants to be Above Average for All ​
5. Securing a CD renewal the first time is key to helping ensure long-term value.    Â
One effective way for banks to establish sufficient long-term value of a customer is to price a first-time renewing CD competitively so it’s retained. That’s because at the second maturity, the customer is anywhere from 6% to 18% more likely to renew, depending on how deep their relationship is with the bank. If, for example, a renewing CD customer also has a checking account, the chances of a second renewal shoots up 10 percentage points, from 82% probability to 92%. This behavioral phenomenon can make it easier for a bank to relax its pricing the second time around. Â
Curinos Deposit Analyzer​
