Credit unions face unprecedented challenges in competing for deposits. Neobanks, fintechs and digital-first services are dramatically changing the competitive landscape, forcing credit unions to rethink their deposit strategies. As consumers increasingly turn to these innovative alternatives, credit unions must evolve and adopt a forward-thinking approach to avoid being left behind.
Successful savings strategies today require an understanding of complex and evolving consumer behavior and a strong grasp of macroeconomic trends. From intergenerational wealth transfers to growing demand for personalized digital experiences, credit unions must respond strategically.
The key to success lies in understanding these factors and leveraging data analytics to create personalized, proactive strategies that address the unique needs of both existing and prospective members.
Factors to consider when creating a deposit strategy
1. Changing consumer behavior: One of the most pressing concerns for credit unions is the increasing willingness of consumers to switch financial service providers. According to a recent study, 40% of consumers are likely to switch financial institutions in 2024, which is double the average rate over the past decade. This proliferation of mobility is both a challenge and an opportunity for credit unions. While this trend reflects growing dissatisfaction with traditional financial services, it also represents a great opportunity for credit unions that can offer a superior value proposition.
Much of this willingness to switch is driven by consumers’ fascination with the digital-first experience offered by neobanks, fintechs, and other online financial platforms. Institutions like Chime and Ally have captured the imagination of young, tech-savvy consumers by offering convenient, personalized, seamless, and mobile-enabled services. These disruptive companies offer streamlined onboarding, user-friendly apps, and often higher interest rates, making them appealing to those who prioritize convenience and competitive pricing.
Traditional credit unions can no longer rely solely on loyalty and traditional relationships to retain members. To remain competitive, credit unions must invest in digital transformation and improving member experiences to meet the rising expectations of customers who are increasingly mobile and digitally native.
2. Spending trends and the YOLO effect: The economic environment is another important factor shaping consumer behavior. Although inflation has been slightly subdued, it continues to drive up the cost of living, creating financial stress for many households. At the same time, personal savings rates have fallen sharply, from an average of 9% over 20 years to just 4% by the end of 2023. As disposable income declines, consumers are being forced to adjust their financial habits. However, this fiscal pressure has not completely suppressed consumer spending.
Despite these economic challenges, many consumers are embracing the idea of YOLO (You Only Live Once), especially in the aftermath of the pandemic. The desire to make up for lost time has led to a surge in spending on travel, entertainment, dining out, and other experiences. For example, live event spending increased by 27% and travel increased by 9% in 2024. While this suggests that consumers are still willing to spend, it also indicates increased use of credit and increased debt.
For credit unions, this change presents both challenges and opportunities. Credit unions must be prepared to offer products that meet the evolving financial needs of their members, including credit card services and personal loans. However, it also emphasizes the importance of developing products that can attract and retain savers even in low-savings environments.
3. Intergenerational wealth transfer: Another important factor to consider is intergenerational wealth transfer. Consumers over the age of 50 currently hold 80% of personal wealth in the United States, while younger generations, particularly millennials, are poised to inherit a staggering $90 trillion in wealth over the next few years. This wealth transfer will create new opportunities for credit unions that can successfully engage younger consumers.
Young people currently hold just 9% of the country’s wealth, but as inheritances change, they will become the most powerful financial demographic. For credit unions, this generational wealth shift highlights the importance of getting the attention of Millennials and Gen Z now, before they inherit large sums of money. Credit unions that ignore this group risk becoming irrelevant as these younger consumers turn to more digitally focused and innovative alternatives.
How to create an effective deposit strategy
1. Strategic Roadmap for Growth: A successful deposit strategy requires credit unions to move from a reactive short-term pricing strategy to a proactive long-term growth strategy. Many credit unions are engaged in “interest rate wars,” raising deposit rates to unsustainable levels. While this may temporarily attract new deposits, it often does little to differentiate an institution’s brand or build lasting loyalty.
Instead, a strategic roadmap should be built on a deep understanding of the credit union’s target member segments and their financial needs. This means identifying not only the most valuable members, i.e. those with the highest balances, but also those with potential for future growth. Credit unions must invest in understanding the behaviors, preferences, and goals of their ideal members and design products, services, and experiences that meet those needs.
2. Leverage data analytics: Data analytics is the foundation of modern deposit strategies. 80% of marketing leaders recognize the importance of data insights, but many companies suffer from inadequate systems and fragmented data sources. To develop effective strategies, credit unions must improve their ability to collect, analyze, and act on first-party and third-party data.
First-party data such as transaction history, account activity, and behavioral patterns provide financial institutions with valuable insight into the financial lives of their members. Combined with third-party data on demographics, lifestyle, and spending habits, credit unions can create a 360-degree view of each member. This allows us to develop targeted marketing campaigns, personalized product offerings and customized financial solutions.
3. The importance of personalization: Personalization is no longer an option, but a necessity in today’s financial services industry. Members now expect the same level of personalized service from their credit unions that they receive from companies like Amazon and Netflix. A recent study found that 72% of consumers believe personalization is very important to their financial services experience, and 76% expect personalized service across all channels.
Credit unions need to leverage data to create personalized offers that meet members’ unique needs. This means leveraging insights from both digital and face-to-face interactions to deliver relevant products, services and advice at the right time. Personalization can take many forms, from customized savings plans to tailored credit offers, but it’s essential that every touchpoint reflects a deep understanding of members’ financial journeys.
In a financial environment where consumers are increasingly willing to switch providers, having a clearly defined and forward-looking deposit strategy is more important than ever. Credit unions need to understand and respond to changing consumer behaviors, including increased demand for digital-first experiences and changing generational dynamics of wealth. By investing in data analytics and personalization, credit unions can build deeper relationships with members and position themselves for long-term growth.
Ultimately, the success of a deposit strategy depends on credit unions being able to move from reactive strategies such as raising interest rates to proactive strategies focused on customer experience, retention, and acquisition. By harnessing the power of data and designing relevant, personalized financial solutions, credit unions can stay competitive in an increasingly dynamic marketplace.
