BAI Banking Outlook Research: Financial Institutions to Prioritize Quality Deposit Growth Over Quantity in 2024

Leaders at financial institutions say that growing quality deposits continue to be the top strategic focus for the year, according to the annual BAI Banking Outlook survey. BAI, a nonprofit, independent organization that delivers the financial services industry’s most actionable insights, found that deposit growth supplanted customer acquisition as the top business challenge, breaking into the top three for the first time.

This shift in priority reflects declining deposit levels for all generational cohorts in consumer banking. When asked about their deposits compared to six months ago, Gen X reported the most challenges, with 41% saying that deposits decreased or that they were facing expenses that exceeded savings. The other cohorts reported similar levels of distress, with 36% of Millennials, 31% of Boomers, and 30% of Gen Z reporting lower deposits or negative cash flow.

More than two-thirds of consumers cited inflation as the primary reason for deposit decreases, with rising housing costs coming in second, impacting more than a third of respondents. Millennials also cited higher job loss than other generations, while Gen Z was more likely to be actively paying down loans.

“Positive deposit growth will likely return in the second half of 2024, which now looks like enough to put us back to slightly positive full-year growth for 2024,” said Mark Riddle, BAI’s Director of Research Intelligence. “Strong positive growth should return in 2025 as rates and inflation settle in the year ahead. In the meantime, growing deposits means focusing on quality growth over quantity growth.”

With interest rates remaining at their highest in a decade, many financial institutions are using high-rate products, such as CDs, to attract more affluent customers. BAI’s research found that a quarter of affluent customers with more than $100,000 in investable assets moved deposits into either CDs or investment accounts. These customers are very focused on rates, and leaders must create a competitive rate strategy to compete.

“Rates and pricing tend to be most competitive among the smaller traditional financial services organizations and direct banks,” Riddle said. “BAI’s Benchmarking also found that alternative and direct banks without branches could grow deposits from a higher mix of competitive CD pricing. This also demonstrates that banks do not need to be customers' primary bank to attract deposits. BAI Banking Outlook found that only 14% of CD accounts are with a consumer’s primary institution.”

Riddle added that looking further ahead, as interest rates hold steady or begin to decline, leaders may look to products such as money market accounts to continue attracting quality growth.

BAI Banking Outlook is an annual study that gives insights into the top priorities, investments, opportunities, and challenges industry leaders face. The research surveyed 1,000 consumers across all generations and over 100 financial services leaders. For more information about the BAI Banking Outlook survey results or to watch a free webinar that goes into more detail on these trends, visit https://info.bai.org/2024-consumer-and-banking-trends-webinar.html.

About BAI

As a nonprofit, independent organization, BAI has delivered the financial services industry’s most actionable insights for over a century, empowering leaders to make smart business decisions. We specialize in providing comprehensive benchmarking to over 40 of the leading US banks, offering compliance and professional development training to over 2,300 financial services organizations, and delivering trusted, relevant thought leadership through BAI Banking Strategies reports, podcasts, and webinars. In January 2024, BAI merged with the Risk Management Association (RMA). This strategic combination brings together BAI’s strength in serving the retail banking and regulatory compliance functions and RMA’s strength in serving the commercial banking and risk management functions. For more information, visit www.bai.org.

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