Cost of Funds & Risk
What is "cost of funds"?
What is.. Cost of funds is the interest expense a bank pays to acquire deposits and other funding sources.
What are non-maturing deposits?
What is... Deposits like checking and savings that don't have a set maturity date and typically remain on the balance sheet.
What are "core deposits"?
What is... Core deposits are stable, relationship-based funds like checking and savings that tend to stay with the bank long-term.
What is "relationship banking" in deposit strategy?
What is...Building deeper customer ties so deposits stay for convenience, relationships, and trust, not just rate.
How can branches improve deposit mix?
What is... By growing checking and savings through relationship conversations and customer needs discovery.
Why is cost of funds so critical?
What is... It directly impacts net interest margin (NIM). Higher funding costs reduce profitability.
Why do banks want more non-maturing deposits?
What is... They are often the cheapest source of funding and provide long-term stability.
Why are core deposits important?
What is... These deposits are the bank's most stable, low cost source of funding, helping improve profitability, reduce reliance on high rate products, and reflect strong customer relationships.
What does a "primary financial institution relationship" mean?
What is... It means the customer uses your bank as their main accounts, they have paycheck or direct deposits coming in, pay bills, savings, and everyday banking, not just a place to park money.
What role do associates play in cost of funds?
What is... They influence, through conversations, which products customers choose, directly impacting funding cost.
What is "deposit repricing risk"?
What is... The risk that deposit rates must rise quickly due to market competition, increasing cost of funds.
What deposit types usually have the lowest cost?
What is... Non-interst or low-interest deposits like checking accounts are typically the lowest-cost.
Why does deposit mix matter?
What is... Because some deposits cost the bank more than others. A better mix improves margin and reduces funding expense.
What is "deposit stickiness"?
What is... Deposit stickiness refers to how likely customers are to keep their money with the bank over time, even when rates change.
How do checking accounts reduce cost of funds?
What is... They typically pay little to no interest and provide low cost liquidity.
How does the Fed rate environment affect deposit mix?
What is... Rising rates make customers rate sensitive, pushing funds into higher cost products like CDs.
Which deposits tend to be the highest cost?
What is...CDs and high-rate money market accounts usually carry the highest interest expense.
What is "deposit mix"?
What is... Deposit mix refers to the balance of different deposit types a bank holds, like checking, savings, money markets, and CDs, and how that impacts profitability.
What type of questions are best to uncover core deposit opportunities?
What is... Open-ended questions.
Ex. Which bank do you currently use for your paycheck/direct deposit account? Where do you usually keep most of your savings right now?
This opens the door to deeper relationship conversations and fund movement.
Why is checking considered the "foundations" of deposit mix?
What is... Because checking accounts drive primary relationships, direct deposits, debit card usage, and long-term loyalty, all at a very low cost to the bank.
How can a bank lower its overall cost of funds without lowering rates?
What is... By improving deposit mix, growing more low cost checking and savings instead of relying heavily on high rate CDs.
What happnes when a bank becomes too CD-heavy?
What is... Funding becomes more expensive and less stable because CDs reprice quickly and can leave at maturity.
What is the ultimate goal of deposit mix management?
What is... To fund the bank with stable, low-cost deposits that support lending, profitability, and long-term growth.
What is the difference between deposit growth and deposit quality?
What is... Deposit growth equals how much deposits increase. Deposit quality equals how stable low cost and relationship-based those deposits are.
How do renewals affect deposit mix?
What is... CD renewals are key moments to shift customers, through conversations, into savings or checking based solutions when appropriate.