Last week (HERE) we looked at how deposit account tiering is used, some of the objectives that banks might employ and the effectiveness of tiering in total. As discussed last week, many banks tier without objective, without data, and without supportive marketing thus rendering the methodology worthless and possibly hurtful.
Because of tradition, we tier our deposit accounts according to size. For a typical bank, their money market accounts often have six tiers ranging from $2,000 up to $100,000. The question that always comes up is - do you have the right tiers and the right number of tiers? Are you using your tiers to drive profit giving low rates or are your tiers just serving to confuse your customer and drive up operational cost?
You create deposit products to segment behavior and you use tiering to drive performance within that behavioral group. While this used to be taught at banking schools, it is largely glossed over these days. Unfortunately, many banks get lazy and set their tiers based off the competition. The funny part is, in many areas of the country, whole markets under-utilize their tiering tactics because no one has looked at the data and everyone is following each other.