Spotlight on Specials

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Five ways to price and sell CD rates, without hurting profitability

By Neil Stanley and Kimberly Myszkewicz

As community banks attempt to grow funding for expanding their loan portfolios, most turn to a tried-and-true method: They promote a certificate of deposit “special.” It is simple and it often works, but isn’t there a better way today to attract and retain funds?

Expert Ideas

Neil Stanley (Neil@TheCorePoint.com) is CEO and founder of The CorePoint, a company in Omaha, Neb. that sells retail deposit pricing and sales software. Kimberly Myszkewicz (kimberly.myszkewicz@rate-watch.com) is marketing manager at RateWatch, a company in Fort Atkinson, Wis., that provides interest rate and product comparison information to financial institutions.

The number and yield of current specials vary across states. For example, based on recent data from RateWatch, 78 of 236 financial institutions in Massachusetts offered CD specials where the Annual Percentage Yield was greater than comparable term Federal Home Loan Bank advance rates. With 33 percent of this state’s financial institutions offering these specials before any fed funds interest rate increase, we can only speculate about the level and volatility of aggressiveness that might be experienced once the Federal Reserve begins to raise rates.

Community banks can significantly improve how they price and sell time deposits to produce more funding volumes with less negative impact to profitability. Here are five sales methods to win over depositors while retaining your community bank’s funding profitability:

1. Offer multiple stages in the sales process. Considering the fact that not all depositors will respond in the same way to various offers, it makes sense to harvest some accounts that are less price-sensitive with your standard pricing at lower interest rates. However, if all you have to offer is this lower standard pricing, you will lose the business that you would have previously retained. Therefore, you need a series of offers.

We recommend a four-stage process that involves standard rates, promotional specials, customized maturities and so-called Limited Edition Savings accounts.

These offers are made sequentially. The goal is to price the often silent majority who do not display as much rate-sensitivity at standard fair rates; attract new deposits and depositors; and price the vocal minority who display rate-sensitive behaviors at managed, consistently exceptional rates.

2. Display dollars. Every CD customer wants two things: a high yield and a short commitment. To bring relevance to the decision-making process of each depositor, community bankers should be equipped to talk to their depositors in terms of dollars.

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3. Compare to competition. In addition to building an environment of transparency and trust, this sales method can quickly and easily identify to consumers the benefit of depositing in a particular bank compared to others they may be considering.

4. Customize deposit maturities along with rate enhancement. Using this approach, banks structure time deposits to mature when depositors would like greater access to their money without a penalty. This accommodation also comes with enhanced pricing. Producing a de-commoditized offering with advantageous pricing for the assertive rate-sensitive depositor often creates a mutually satisfying negotiation and overall customer experience for these depositors.

5. Offer an invitation-only Limited Edition Savings account. This sales method involves offering a special-purpose savings account as a last resort to retain maturing time deposit accounts when depositors appear committed to leaving unless another offer is matched. The unique account structure prohibits deposits and therefore eliminates the disintermediation of checking and savings funds. This is a familiar restriction to CD depositors who don’t expect the opportunity to deposit additional funds to their CDs and so don’t care.

CD specials may ultimately be a legitimate part of an effective pricing and sales strategy. However, high-performing managers realize that overemphasizing CD specials is problematic. They use CD specials frugally to add spice to a robust set of processes, products and sales tools that enable their bank to consistently generate properly priced deposits in any interest rate environment.

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