Analysts say US banks are offering bonuses for securing customers' deposits

Analysts say US banks are offering bonuses for securing customers' deposits.

Consumers have been asking banks to pay more money for deposits for months as the Federal Reserve raises interest rates. Now that the banking crisis rattled markets last month, analysts say, lenders appear to be realigning offerings to keep customers' money hanging in their accounts for longer.

US banks try to woo depositors by offering signing bonuses for opening new accounts or depositing money regularly. The promotions are taking place as the failure of Silicon Valley Bank (SVB) and Signature Bank last month spooked customers, prompting them to move $119 billion from small enterprises.

Capital One Financial Corp. announces a $100 bonus for opening a new savings account and holding more than $10,000 in it for 90 days. The offer is up to a $1,000 reward for deposits over $100,000. Discover Financial Services and LendingClub offer similar perks, which were in place before banks started operating.

Citizens Financial Group is offering a $25 bonus to customers who put in $100 a month for three months and maintain a minimum balance, according to emails sent to customers after March 10. The offer is part of a pre-planned campaign to promote healthy saving habits, not a reaction to specific events, Citizens spokeswoman Eleni Garbis said.

Capital One and Discover did not immediately respond to requests for comment.

Analysts said paying more for deposits is an effective way for banks to maintain customer loyalty.

"With prices rising, high-yield savings accounts are fashionable again, with some banks competing aggressively to stay ahead of the rate scales that consumers rely on for comparison purposes," said Andrew Davidson, chief insights officer at Mintel—a market intelligence agency.

He added, "The stiff competition has been heightened by the general decline in deposits with more companies reaching out to clients in the past few weeks."

Banks also attempt to retain customers through other techniques, such as explaining rules about deposit insurance to customers, offering different products, or emphasizing links with local communities.

According to the weekly Federal Reserve, smaller banks, which the latest crisis has most stressed, have halted the mass deposit exodus. But industry experts continue to watch the outflows closely.

Deposit flow stability

Federal Reserve data showed that smaller US banks — defined as any lender not among the 25 largest asset-ranked US banks — saw their deposits stable on March 22, down just $1.1 billion from the previous week on a non-seasonally adjusted basis.

That compares with the $185 billion in deposits pulled from smaller lenders by panicked customers during the week ending March 15, after the SVB collapsed. However, Fed data showed that deposits at smaller banks were still down about $216 billion during the week ending March 22 from their December high.

The Independent Community Bankers of America, an industry group, said some members have recently withdrawn deposits as consumers and small businesses have sought banks with strong ties to their local markets.

"Community banks have not reported large-scale withdrawals in response to the SVB failure," said Anne Balser, Senior Executive Vice President and Head of Government Relations and Public Policy at ICBA. "Main Street Community Banks are there for their clients in times of instability." Proven resilience through economic cycles."

Meanwhile, Fed data showed that large US banks lost $96.2 billion in deposits in the week ending March 22. Many analysts attributed the decline to depositors transferring their money to money market funds with higher returns.

Deposits in major banks fell by about $519 billion from $11.2 trillion in February last year.

Banks act as middlemen in the economy by taking deposits and making loans. So far, the decline in deposits has kept them from extending credit to households and businesses.

"Tighter financing conditions for banks did not translate into any significant slowdown in the growth of total loans to the US banking sector compared to February levels," analysts at Moody's Investors Service said in a note.