U.S. Banks Are Give Promotions To Lock In Customer Deposits, Analysts Say

For months, consumers have demanded US banks to pay out more for deposits as the Federal Reserve hiked interest rates. Now analysts say after the banking crisis rattled markets in March, lenders seem to be tweaking offers in an effort to keep customers’ cash parked in their accounts for longer.

U.S. banks are trying to attract depositors by giving signing bonuses to open new accounts or deposit money on a regular basis. The promotions are running at a time when the collapse of Silicon Valley Bank (SVB) and Signature Bank in March spooked customers, causing them to pull $119 billion out of smaller institutions.

Capital One Financial Corp (COF.N) is advertising a $100 bonus for opening a new savings account and keeping over $10,000 in it for 90 days. The offer increases to a bonus of $1,000 for deposits of upwards of $100,000. LendingClub (LC.N) and Discover Financial Services (DFS.N) are offering similar perks, which were in effect before the bank runs started.

Citizens Financial Group (CFG.N) is offering a $25 bonus for customers who deposit $100 a month for three months and maintain a minimum balance, emails addressed to customers after March 10 showed. The offer is part of a pre-planned campaign to encourage healthy savings habits, and not in response to specific events, Citizens spokeswoman Eleni Garbis said in a statement.

Discover and Capital One did not promptly reply to requests for comment.

Paying more for deposits is a good way for banks to keep customers loyal, analysts said.

“As rates have risen, high-yield savings accounts have become fashionable once again with some banks competing aggressively to stay at the top of the rate tables that consumers rely on for comparison purposes,” said Andrew Davidson, chief insights officer at Mintel, a market intelligence agency.

“The intense competition has been further fueled by an overall drop in deposits with more firms reaching out to customers in the last few weeks,” he added.

Banks are also trying to keep customers by using other techniques such as offering different products, explaining to customers the rules around deposit insurance, or highlighting ties to local communities.

Smaller lenders, which were most strained by the recent crisis, have been able to stop the withdrawal of deposits for now, according to weekly from the Federal Reserve. But industry experts continue to monitor the outflows keenly.

Deposit Outflow Stabilizing

The Fed’s data revealed smaller U.S. lenders — defined as any lender that is not among the biggest 25 U.S. banks ranked by assets — saw their deposits stabilize in the week of March 22, falling just $1.1 billion from the prior week on a non-seasonally adjusted basis.

That contrasts to $185 billion of deposits that were pulled out of smaller lenders by spooked customers during the week ending March 15, after SVB collapsed. That said, the Fed’s data revealed deposits at smaller lenders were still down some $216 billion during the week ending March 22 from a December high.

The Independent Community Bankers of America, an industry group, said several of its members had actually received deposits in recent weeks as consumers and small businesses sought out banks with deep ties to their local markets.

“Community banks have not reported widespread withdrawals in response to the SVB failure,” said Anne Balcer, senior executive vice president, chief of government relations and public policy at the ICBA. “Main Street community banks are there for their customers during uncertain times and have proven to be resilient through economic cycles.”

Meanwhile, major U.S. banks missed out on $96.2 billion in deposits in the week ending March 22, according to the Fed data. Several analysts ascribed to decline to depositors moving their cash to higher-yielding money market funds.

Deposits at big banks fell some $519 billion from as high as $11.2 trillion in February 2022.

Banks serve as middlemen in the economy by taking deposits and making loans. So far, the fall in deposits hasn’t hindered them from extending credit to businesses and households.

“Tighter funding conditions for banks have not translated into any notable deceleration in aggregate U.S. banking sector loan growth relative to February levels,” analysts at Moody’s Investors Service said in a note.