Basis Points Up for Grabs: Four Ideas to Gain an Edge in Deposit Management
- Joe Kennerson
- 11 minutes ago
- 4 min read
The deposit game may be getting a bit easier, but it’s still the toughest game in town. We are in the midst of “phase two” of the Fed’s easing cycle, and with it, deposit rates are expected to come down. It’s just taking some time.
To illustrate, 6-month Treasury rates fell 50 bps in the late summer of ’25 and are currently well below 4%. Yet more than half of all banks and credit unions in late November were still offering a CD rate over the 6-month Treasury rate.
There are three underlying elements at play that make lowering deposit rates unnerving for bankers.
First, balance growth has been minimal. Deposits are up just 2% through the first nine months of the year.
Second, this is new territory. The last two Fed easing cycles ended with rates at zero. Those days are gone. It’s been over two years since the Fed stopped hiking rates, and we are still in the upper 3% range for the Fed funds rate. The industry is living in a rate environment not seen in quite some time.
Third, we have entered a new era of liquidity management. In addition to the unchartered rate environment, we are experiencing slower deposit growth, fintech disruption, and now stablecoins entering the discussion. Given that managing liquidity today is much different than the past 15 years, bankers will be apt to pay more to protect existing relationships as well as grow deposits.
For a deeper discussion of deposit strategies for 2026, click to view Joe’s recent webinar Basis Points Up for Grabs.
The result is a massive tug-of-war between trying to lower deposit rates and protecting deposit relationships. Here are four ideas to help find the sweet spot in that internal struggle and gain an edge in deposit management.
1. Move from Defense to Offense
It feels like the industry has been on its heels protecting deposit relationships for the past three and a half years. Now is the time to turn it around and go on the offensive. Here are two strategies to consider:
Comeback campaign: Take a look at the deposits lost from late 2022 through early 2024. Many bankers at the time said depositors took their funds to online savings accounts or Treasury bills. Today, many institutions have rates that are comparable to those same outlets. There is a better story to tell now, and former depositors may welcome your personal reach out to re-engage.
Target single-sourced accounts: “Land and expand” is how the saying goes. Take a look at all CD-only accounts or single-sourced MMDAs, and develop a plan to expand the relationships.
2. Rethink the CD Strategy
CDs are a rollover game. Here are the current facts according to DCG’s Deposits360°® solution: new money coming into CDs is way down, and rollover percentages are way up. In fact, Deposits360° analytics show that the more rollovers a CD account goes through, the stickier they become.
Look at the 6-month Treasury rate as your top bogey for pricing (not local competition), and reshape the CD curve to focus on rollovers, and less on growth.
3. Get Surgical with MMDA Tiers
The spread between CD rates and MMDA rates is just over 125 bps, per Deposits360° industry data. This is making MMDAs more attractive.
Here are more facts according to Deposits360°: Since the Fed started cutting rates in 2024, MMDA growth is more than four times CD growth, cannibalization levels on new promotions are lower than CD promotions, and the marginal cost of funds on that growth is lower. Furthermore, Deposits360° is forecasting CD balances to decline as the Fed eases and MMDA balances to increase.
Lean into this strategy, and do not dismiss the idea of narrowing the pricing spread between top-tier MMDA rates and CD rates even further.
4. Understand the Cost of Cannibalization
This timeless exercise can save basis points by helping identify the time to pivot from a losing strategy and accelerate a winning one. Here are the necessary data points for a complete picture of cannibalization:
(1) New money from new depositors
(2) Existing relationships growing wallet share
(3) Lost relationships
(4) Existing depositors shrinking their wallet share
(5) Funds shifting accounts
The final data point about shifting funds is critical. All promotional accounts will experience cannibalization. However, quantifying how much and the source of that cannibalization can generate a marginal cost of funds on that deposit promotion. See the example below tracking a recent MMDA promotion vs CD special.
Source: Darling Consulting Group, Deposits360°®
The results of cannibalization analysis can have a profound impact on pricing meetings. In fact, these hard data facts prove invaluable in helping to take emotion out of decision-making.
The deposit landscape is evolving rapidly, and while the easing cycle provides some breathing room, it also introduces a new set of strategic challenges. The institutions that will win this next phase aren’t simply those that lower rates the fastest; they’re the ones that manage the delicate balance between protecting liquidity and optimizing funding costs.
By shifting from defense to offense, rethinking CD strategies, fine-tuning MMDA pricing, and quantifying the true cost of cannibalization, bankers can uncover meaningful basis points that add up to real competitive advantage. The opportunity now lies not in reacting to market changes, but in proactively reshaping deposit strategies with precision, data, and discipline.
ABOUT THE AUTHOR
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 at jkennerson@darlingconsulting.com or 978-499-8150 to work collectively to transform ALCO into a profit center.
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