Rethinking CDs: From Sleepy Product to Modern Growth Engine
For decades, certificates of deposit (CDs) have
carried an undeserved reputation. Once dubbed “America’s dullest investment,”
CDs were often viewed as a commoditized funding source: useful, but bland.
However, when the Federal Reserve began raising rates in 2022, both consumers
and banks were forced to rethink that assumption. CDs quickly transitioned from
forgotten to front‑of‑mind as millions of savers sought predictable returns,
low risk and the comfort of federal deposit insurance.
For bankers, the past few years have revealed that
this classic product can be transformed into a modern engine for deposit
growth, customer acquisition and long‑term profitability in any rate cycle.
With the right strategies, CDs can be leveraged to attract not just deposits,
but to fuel distinct lending programs that drive asset growth.
Why CDs Deserve a Second Look
The CD market is large, stable and often
misunderstood. Today, total CD balances sit around $3 trillion, with approximately
$2.3 trillion in retail CDs. Roughly 15-20% of U.S. households hold a CD,
translating to more than 20 million households nationwide. And, CD ownership
skews toward more affluent savers, with growth in the market increasingly
driven by high‑asset households. When banks win these deposits, they also gain
the opportunity to deepen relationships through cross‑selling and long‑term
engagement.
Operationally, CDs are straightforward to maintain,
generate fewer transactions and servicing events, and carry relatively low
fraud risk compared to high‑transaction accounts. Customer acquisition costs,
often estimated between $175 and $300 per account, are notably lower than other
deposit products, particularly given the duration and stability CDs provide.
Understanding the Modern CD Customer
To succeed with CDs, banks must understand the
savers behind them. Many of the consumers that embrace CDs are considered
“Savvy Savers,” self‑directed, conservative investors who shop carefully for
rates because every basis point matters. Some still prefer local institutions,
even traveling significant distances to open accounts, while a growing majority
are comfortable opening CDs online. Other segments include “Sleepy Savers,” who
take a set‑it‑and‑forget‑it approach to savings, and “Event Savers,” often
younger customers saving for specific goals such as a home or education.
CDs also play distinct roles across generations.
Baby Boomers focus on retirement income and capital preservation, Gen X uses
CDs for retirement buffers and life events, Millennials emphasize emergency and
goal‑based savings, and Gen Z uses CDs to build savings discipline.
Understanding these differences between generations and saver types can help
banks more effectively attract, engage with and retain these customers.
It’s a misconception that CD holders are merely
rate chasers with little lifetime value; in reality, many are intentional,
financially engaged customers with the capacity and interest to build broader
banking relationships.
Winning CD Business Isn’t All About Rate
For banks to capitalize on this opportunity, they
must first modernize digital account opening. Despite clear consumer demand,
only about one‑third of financial institutions offer online CD account opening.
This is a foundational capability for competing effectively today.
Second, bankers should consider changing their
geographic mindset. As consumers grow more comfortable with banking online, the
addressable market expands well beyond branch footprints. However, visibility
is critical. Search behavior is evolving rapidly, with generative AI playing a
growing role in how consumers discover financial products.
Banks must ensure their data, pricing and digital
presence are structured and credible enough to be surfaced and trusted by these
systems. Digital marketplaces and rate comparison sites, once dominated by the
largest institutions, can now offer banks of all sizes a cost‑effective way to
reach these customers.
Third, leverage data. Market intelligence tools
allow banks to analyze the CD yield curve, track competitors and identify
pricing opportunities. Legacy, low‑interest deposits are increasingly rare, and
proactive pricing strategies are essential.
Turning CDs into a Growth Strategy
CDs do not offer a complete solution to a financial
institution’s funding needs, but dismissing this legacy product may mean losing
out on meaningful and profitable growth strategies.
For example, Seattle Bank has a growing Partner
Banking business offering embedded lending services to brands nationwide,
including home improvement and agricultural product companies. Loan demand
peaks in the spring and summer months and Seattle Bank, with $1 billion in
assets, generates CDs to ensure sufficient liquidity during this busy season.
Offering highly competitive rates and marketing to savers nationwide on CD
Valet, Seattle Bank fuels this profitable asset growth with its CD portfolio.
With $298 million in assets, Community Savings in
Caldwell, Ohio uses a similar approach. This community development financial
institution invested in digital account opening technology which, coupled with
compelling CD rates and terms and national visibility, enables it to attract
CDs from across the country. These funds support the bank’s nonconforming
mortgage lending, a business line central to its mission.
Even if they are not aligned to a specific line of
business, CDs can diversify a bank’s funding sources in loan-heavy, deposit
scarce markets. Many rural and small-town banks are increasingly
deposit-constrained, with slower core deposit growth. Pulling in incremental
funding – including high-balance, low-fraud-risk CDs – through digital channels
can power lending that wouldn’t otherwise be possible.
Rethinking CDs as the “Term Tsunami” Rolls In
According to S&P data, more than $1 trillion in
CDs will reprice in the coming months. This represents a rare chance to capture
high‑intent deposits from savers actively shopping for new homes for their
funds.
With the right digital experience and service
model, CDs are no longer sleepy products but rather a powerful tool for
sustainable growth.
About Author:
Mary Grace Roske is Head of Marketing and Communications for CD Valet, a CD
marketplace that features verified CD rates from federally insured banks and
credit unions and provides visibility for their brands and CD offerings to
high-intent CD customers.