Unprofitable deposit accounts.
Like most bankers you probably have a sense that some of your deposit accounts are unprofitable. Based on my experience I’d guess it’s about half. But let’s not get hung up on specific numbers. Instead let’s look at why you have unprofitable deposit accounts.
There are many reasons for unprofitable deposits but the biggest reason is probably using aggregate measures (like balances) instead of instrument-specific measures (like actual transaction behavior) to judge profitability.
What this boils down to is that if you can’t measure deposit profits you can’t manage deposit profits.
Another big factor is failing to set a specific deposit profit target. We’d never consider not setting a profit target for loans or investments, but somehow when it comes to deposits (80%+ of typical bank balance sheet footings) we overlook it.
It’s hard to hit a profit target that you don’t set.
The third factor is pricing. Bankers do a poor job of setting prices based on objective factors and often default to rules of thumb or “competition” as a shortcut. But the truth of the matter is that without instrument-specific measurement and absent a specific profit target that’s often all we have left.
Improve your measurement, goals and process and watch your deposit profits increase.