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  • Writer's pictureJoe Kennerson

2023 Outlook for Deposits: Three Action Items

2023 Outlook for Deposits: Three Action Items

Here’s the reality of the current state of the deposit environment. If you thought Q4 2022 was challenging in terms of rate increases and deposit attrition, it’s likely that the first half of 2023 is going to be even more difficult. The ability to lag deposit pricing is clearly over and retaining balances, let alone growing new funds, will be a challenge.

In fact, DCG’s Deposits360°® non-maturity deposit forecasting model suggests that if the Fed raises rates to 5% in Q1 of 2023, we could see roughly a 45-50bp increase in total non-maturity deposit costs (inclusive of non-interest bearing checking). Adding to the pressure, DCG’s corresponding balance forecast suggests that non-maturity deposits will shrink roughly 5% in that scenario.

The deposit pressures come amidst a banking environment with tighter liquidity levels, higher wholesale funds, and the cost of raising funds at the margin at levels we have not seen in a long time. It’s no mystery why deposit management is at the forefront of every pricing and ALCO/Board meeting.

Here are three action items to consider for institutions seeking to outperform in 2023:

1. Get Creative. If your institution’s budget is forecasting meaningful deposit growth, you must get creative with product offerings. A high-rate CD special with a low minimum balance and no hooks will likely increase cannibalization and the marginal cost of funds while missing growth targets. What worked in the past may not necessarily work today. DCG is seeing more Deposits360°® clients offer unique products. Examples include more relationship-based products, new money components, and layers of MMDA offerings based on overall banking status.

2. React to the Data, not “Gut.” Let’s face it: most pricing decisions are happening behind the scenes. It’s nearly impossible to really gauge what competitors are doing. The Fed has acted fast, and many bankers have never managed through a cycle like today’s. If your institution is experiencing accelerated deposit outflows, the best practice is to identify the data trend before reacting. For example, consider the following questions:

  • Are balances shifting to CDs? If so, was this our intent?

  • Are we losing key relationships? If so, how can we identify who else is at risk?

  • If average balances are declining, is this happening in high tiers or throughout the base?

  • Is this happening in a specific branch or location?

The response to these questions can help provide specific direction for your next pricing or product move.

3. Look Within. Institutions will likely have more success today raising new money from existing depositors than from new depositors. And none can afford to lose key relationships. DCG recommends developing early warning systems to prevent future attrition, and building campaign lists to potentially win back funds. For example, DCG data suggests that before accounts close out there is generally a paper trail of continuous balance reductions. Developing an early warning scorecard can help institutions stay ahead of potential attrition.

Relationship Declining Balance

Relationship Declining Balance Chart

Source: Darling Consulting Group Deposits360°®

2023 may be the most challenging year in recent banking history to protect and grow deposit balances. There are no shortcuts. Utilizing data analytics is no longer a “nice to have,” but a necessity for institutions seeking to effectively manage deposit balances and cost of funds.

Darling Consulting Group’s Deposits360°® is an online data analytics solution used by over 250 financial institutions to help with forecasting, provide a deposit study, and most importantly, provide visibility into depositor behavior patterns to drive strategic decisions.

Learn more about DCG's Deposits360°® services.



Joe Kennerson is a Managing Director at Darling Consulting Group. In this capacity, he works directly with financial institutions by providing solutions for their asset liability management process in the areas of interest rate risk, liquidity risk management, ALM modeling, regulatory compliance, and executive-level education. He is a frequent speaker and author and directly advises clients in all aspects of ALM.

Contact Joe Kennerson: or call at 978-499-8150 to learn more about DCG's Deposits360°® services.


© 2023 Darling Consulting Group, Inc.


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