Banks use deposited money to fund loans, so the more deposit money a bank has, the more loans it can write and the more profits it can generate from those loans. Banks can employ a number of different deposit-gathering strategies ranging from promotional rates to prize draws to lure new customers. However, many banks attempt to gather more deposits by offering services other than just deposit accounts and hope that when customers sign up for these services the deposit accounts will follow.
The most obvious way for a bank to gather deposits involves advertising above-average interest rates on deposit accounts such as certificates of deposit. Banks advertise CD rates in local newspapers and online, and many people respond to these adds by moving their money from bank to bank in pursuit of the best interest rate. However, high interest rates on CDs cut into the bank's profits, so while promotional rates are good in the short term, high rates are not sustainable if banks are to remain profitable.
Commercial customers tend to have more funds to deposit than regular consumers, and large retail stores deposit significant sums of money into banks every day. Retail store managers have to schedule time to take deposit bags to the bank, and bank visits are tough to schedule during times of the year when retail stores are busy. Some banks provide deposit collection services that involve bank couriers collecting cash deposits from businesses. This frees up time for the store workers and enables the bank to gather more deposits.
Deposit Account Services
Customers are not only concerned with high interest rates when it comes to banking. Many people want accounts that have no fees, allow easy access online and at automated-teller machines, free checks or access to a safe deposit box. Consequently, many banks offer free or low-cost accounts to attract new customers, while others offer bundles of services such as free safe deposit boxes and discounts on loan rates for people who establish deposit accounts.
Many banks hire outside companies to conduct regular customer satisfaction surveys. Bank managers believe that providing a high level of customer service leads to increased customer satisfaction and customer loyalty. Banks often enforce strict rules about how customer interactions are handled in the belief that customers will encourage their friends and family members to bring their deposits to the bank due to its excellent customer service levels. Major banks often find that the easiest way to gather new deposits involves simply buying out smaller banks. Major banks usually target banks that are based in affluent areas and have large deposit bases when choosing targets for a takeover.
- CNN Money; Five Reasons Banks Don't Get It (and a Few Banks That Do); Ismat Sarah Mangla; December 2009
- "Forbes": How U.S. Banks Can Attract Middle-Market Customers; Jeremy Fox-Geen, Andrew J. McCarthy and Pablo S. Simone; August 2008
- "Wichita Business Journal": Small Banks Emphasize Advertising as Way to Compete With Large Banks; Lainie Mazullo; July 2002