For decades, financial institutions operated under a simple but powerful assumption: deposit growth was inevitable.
That belief has been shattered.
Over the past two years, banks and credit unions have grappled with liquidity pressures, intense competition, and changing customer behaviors that have fundamentally altered the deposit landscape.
The paradox is clear—deposit betas remain elevated, competition for funding is fierce, and yet many institutions are still operating under outdated assumptions about core deposit stability.
The lesson from recent years is undeniable. Deposit gathering is no longer passive; it is a strategic imperative.
From the Editor
Three in 10 Americans made a New Year’s resolution last year [1], with the most popular focused on living a healthier lifestyle and saving money.
But by the second week of January, many of those resolutions had already begun to fail.
As the calendar flips and the ink on annual budgets has dried, we find financial institutions that are “resolute” in their strategy for the current year. Perhaps a management team intends to “hold the line on exception deposit pricing”… but then conveniently tosses that approach aside as soon as a valued customer challenges their resolve.
In this month’s Bulletin, DCG Solutions Consultant Michael Hunker writes about a paradox associated with deposit gathering and retention. He asserts that instead of reacting with knee-jerk pricing moves, institutions must develop strategic, long-term deposit strategies aligned with broader balance sheet objectives.
Given that deposit growth is no longer “inevitable,” leaders must replace prior business practices with a reinvigorated approach for the coming year. And while old habits can die hard, your balance sheet’s success in 2025 may rely on your adherence to your institution’s deposit “resolutions.” Best of luck to all in 2025!
Vin Clevenger, Managing Director
The Erosion of Deposit Stability
The liquidity surge of 2020-2021, fueled by government stimulus and aggressive monetary easing, gave way to a turbulent 2023-2024 marked by deposit outflows and rising funding costs. As we enter 2025, deposit trends continue to shift in ways that demand a fundamental rethink of ALM strategies.
Source: DCG Deposits360°®
Key Drivers of Deposit Volatility:
Higher-Yield Alternatives – With money market funds and Treasury securities offering competitive rates, many rate-sensitive customers have opted for these options over traditional bank deposits
Relentless Competition – Online banks, fintechs, and large institutions are aggressively targeting deposits with attractive rates and seamless digital experiences
Customer Behavior Shifts – The mobility of deposits has increased dramatically as consumers and businesses embrace digital banking, making traditional assumptions about core deposit retention increasingly unreliable
Put simply, deposits are no longer "sticky" by default. Financial institutions must now take an active role in both defending their deposit base and attracting new funds in a sustainable, strategic manner.
The Pricing Conundrum: Rate Sensitivity vs. Margin Compression
One of the most pressing issues in ALCO meetings today is how to price deposits effectively. Institutions face a difficult balancing act:
Compete too aggressively, and margin compression accelerates
Hold back on rates, and deposit attrition rises
Overuse promotional pricing, and the institution attracts rate-sensitive funds that will leave at the first opportunity
A closer look at recent CD specials reveals a troubling trend: many institutions are following rather than leading. The spread between CD specials and Federal Home Loan Bank (FHLBank) advances has been razor-thin, making one wonder: Are banks setting their own strategies or just playing a high-stakes game of “Follow the Leader”?
Instead of reacting to market pressures, institutions need a structured pricing framework that aligns with their broader ALM strategy.
This means integrating forward-looking rate expectations, liquidity stress testing, and customer segmentation into the decision-making process.
One potential silver lining is that if interest rates begin to decline, some deposit relief may emerge. As market rates fall, competition for high-yield alternatives could lessen, and deposit betas may moderate. However, banks should not assume that a rate cut alone will solve their funding challenges. Instead, they should use any period of relief to reinforce deposit stability and refine their pricing strategies.
Beyond Pricing: The Need for a Differentiated Strategy
If the past two years have proven anything, it’s that a “set it and forget it” approach to deposits is no longer viable. Financial institutions must adopt a proactive and nuanced strategy that goes beyond chasing rates. Here are three areas of focus:
1. Deepening Relationship-Based Deposits
Transactional accounts alone are not enough. Customers who have multiple touchpoints—such as direct deposit, loans, and digital engagement—are significantly less likely to move their funds for a modest rate differential. Institutions should prioritize relationship-based deposit strategies that emphasize long-term retention.
2. Targeted Pricing and Segmentation
Not all depositors are the same, so why price them like they are? A more sophisticated, data-driven approach that segments customers based on behaviors, balances, and liquidity needs will lead to better retention and pricing efficiency. Different customers have different needs, akin to the car shoppers who value speed whereas others desire cargo space. Your deposit pricing should reflect that reality.
3. Liquidity Readiness and Contingency Planning
If 2023-2024 was a wake-up call for liquidity management, 2025 is about execution. Every institution should be conducting rigorous stress tests to model potential deposit outflows and ensure they have diversified funding sources in place. The ability to adjust deposit pricing dynamically in response to market conditions is no longer optional—it’s a necessity.
Final Thoughts: Playing Offense, Not Defense
The battle for deposits is not easing in 2025—it’s intensifying. Financial institutions that take a passive approach will find themselves struggling to keep pace in an environment where deposit mobility, competition, and rate sensitivity have fundamentally changed.
Instead of reacting to deposit outflows with knee-jerk pricing moves, banks and credit unions must develop strategic, long-term deposit strategies that align with their broader balance sheet objectives.
The days of perpetual 4-6% annual deposit growth are over. The institutions that thrive in this new era will be those that treat deposit gathering as a strategic discipline—one that requires creativity, agility, and long-term vision.
If your deposit strategy is to ‘wait and see,’ just remember—most New Year’s resolutions don’t last past February, either.
[1] "New Year's resolutions: Who makes them and why," Pew Research Center, 1/29/2024
For more insights from Darling Consulting Group, click here.
ABOUT THE AUTHOR
Michael Hunker is a Solutions Consultant at Darling Consulting Group. He has a comprehensive background in risk management, financial analysis, and data analytics. In his role, he leverages his expertise to help financial institutions optimize their deposit strategies and manage risks effectively. He presents sophisticated deposit model results to senior executives and provides in-depth training on DCG's software solutions.
Before joining DCG, Michael was an Asset Liability Manager at First Tech Federal Credit Union, where he played a pivotal role in implementing an ALM modeling platform and managing a substantial investment portfolio. His responsibilities included presenting critical liquidity and interest rate risk analyses to the executive team and ensuring compliance with regulatory standards.
Michael holds a Bachelor of Science in Accounting and a Master of Science in Finance from Pacific University, and he is a Certified Treasury Professional (CTP).
© 2025 Darling Consulting Group, Inc.
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