The materials available in this article are for informational purposes only and not for the purpose of providing legal advice. You should contact your own advisors with questions regarding the core deposit growth content herein. The opinions expressed in this article are the opinions of the individual authors and may not reflect the opinions of MeridianLink, Inc.. The opinions expressed in this article are the opinions of the individual authors and may not reflect the opinions of MeridianLink, Inc.
Is it real core deposit growth, or is it just a temporary boost?
MeridianLink® Director of Product Management, Robby McWilliams, explained the importance of this distinction in a recent fireside chat with ProSight Financial Association’s Isio Nelson. With deposits up industry-wide, McWilliams flagged a new risk: the deposit growth mirage.
What is the deposit growth mirage?
Essentially, it’s the idea that more deposits don’t necessarily translate to strong, long-term financial relationships and, critically, continuous growth.
It’s true that deposits have risen across the banking industry. ProSight’s September 2026 State of U.S. Deposits revealed that, year-to-date, consumer deposits have grown by roughly 1.2%. (At the same point in 2025, consumer deposits were down 0.3%.) The picture becomes more complicated when the same data reveals that big banks are driving the bulk of that growth.
The rate of deposit growth at big banks is more than double that of regional banks (8.6% vs. 3.4%). As of September 2026, big banks’ year-to-date total deposit balance growth sat at 1.4%, while super regional banks’ growth remained flat. Regional banks and community banks have seen a combined 1.2% loss in deposits over that same period, even as overall growth remains up.
Then there are interest rates. We’ve already seen one rate increase this year. And there’s an 83%–90% chance of another before the end of 2026. For now, smaller institutions appear to be weathering the hike well. But sustaining that success may become more difficult over time if rising consumer costs persist alongside rate increases.
All that to say, it’s no wonder that community bankers name net interest margins (NIMs) and deposit growth as the top-two external risks to their institutions today. If community and regional institutions can’t sustain their core deposit growth, then their NIMs will suffer, particularly in a high-rate environment. According to ProSight, several banks and credits unions are already wrestling with shrinking deposit ratios, tighter margins, and higher competition for primary banking relationships.
How can it be that so many smaller institutions are struggling with deposit growth when, industry-wide, total deposits are rising?
This is where the deposit growth mirage comes in.
ProSight’s data also highlighted that money market funds are up by about 20%, relative to 4% deposit growth. As Nelson noted, people are putting their money where the rate is. As rates continue to climb, you’ll likely see more accountholders seeking money market accounts and certificates of deposit (CDs) for higher returns.
These accountholders are driving up your deposit growth…for now. But, as McWilliams says,
“That money is rented.”
It hinges on an expiration date, whether that’s CD maturation or day ninety-one following a ninety-day promotional rate, at which point the accountholder begins the search for the next rate opportunity to maximize their returns. When they find that opportunity, they, and their money, leave. Meanwhile, you take a one-two punch straight to your deposit growth and cost of funds. Ouch.
That is the “deposit growth mirage.” Your deposits achieve real, tangible growth, but much of that growth is from rate- or incentive-driven consumers versus relationship-driven consumers seeking a primary bank. The money they bring to your institution is temporary and shouldn’t be one of the metrics you base your growth on.
How to effectively measure, and raise, core deposit growth.
If total deposit balances and new accounts aren’t telling the whole story, then what metrics are? McWilliams has a suggested approach:
1. Review funded account rate first and then move on to new accounts.
You may open fifty new accounts in a month, but if ten remain unfunded, only forty are actually contributing to growth. Of those forty funded accounts, twelve may be tied to a cash incentive, such as a $400 bonus for depositing $1,000 in qualifying funds within the first ninety days. According to ProSight’s estimate, more than half of those incentive-driven accountholders may leave once they collect their bonus.
Another seven accounts come from CDs and money market funds. These are your rate-driven consumers. And once their accounts mature, that cash is back on the market and ready to move wherever rates are most competitive.
Finally, you flag two more accounts coming from an indirect auto loan partnership with a local dealership. If you’ve ever financed a vehicle this way, then you probably already know how it goes: You set up recurring automatic payments and rarely give the institution receiving those payments a second thought. Once the loan is paid off, you move on from that institution entirely. Not exactly a setup that lends itself—pun partially intended—to a lasting financial relationship.
By now, you’ve narrowed those fifty new accounts to the nineteen with the most long-term deposit growth potential.
2. Review existing accounts against activity and type
The consumers behind your monthly report’s closed accounts are long gone. Closing their account was just the final step in their departure.
Many consumers never bother to close their accounts at all. They just reroute the auto-draft bills and direct deposits to a new account, leaving their account with your institution to languish indefinitely.
These are your “quiet quitters,” as McWilliams puts it. They have a low balance, or no balance, and virtually zero debit card activity. Avoiding this scenario requires knowing the early-stage signs to intervene, which can include:
- Discontinued direct deposit: A recurring paycheck stops arriving, indicating the relationship has moved.
- The “paycheck hotel”: The direct deposit still lands on schedule, but it’s gone within hours of arriving. This means you’re likely not the accountholder’s primary institution.
- Cessation of recurring payments: When the bills stop being deducted, you need to move—quickly. It’s often one of the last steps before closing an account.
- Declining card usage: Debit spending drops or stops entirely, meaning everyday spending is happening somewhere else.
- Fewer logins: People generally check in on their primary accounts. A decline in digital sessions can mean that primary account has moved.
- One large deposit and no additional products: Without a card, direct deposit, or any other activity beyond the initial deposit, there’s a good chance this is a rate shopper, and that big initial deposit won’t be staying in the account for long.
Per the Federal Reserve Bank of St. Louis, 89% of accountholders are digitally active, and only 39% of those accountholders have direct deposit. With that in mind, money movement is often a stronger indicator of primacy than the lack of direct deposit alone.
Once you’ve uncovered the quiet quitters and the rate- or incentive-driven accountholders, the remaining accounts, in combination with those nineteen new accounts you already flagged, reveal a number closer to your actual core deposit growth.
You have today’s number. Now, it’s time to make sure tomorrow’s number is higher.
Every open account is an opportunity for deposit growth, down to the indirect borrowers who barely know your name. You just need to give them a reason to stay, and how you go about that depends on the type of accountholder they are.
Relationship-driven accounts
These are the easiest to retain, if you put in the effort. They’re already bought in and willing to stay through every rate cycle. They can also help you weather the rate-shoppers who drop off. Invest in them with relevant offers, periodic outreach, and consistent, quality service. This can provide extensive returns and protect your growth in the long run.
Rate-driven accounts
Rate shopping isn’t inherently a bad thing. These accountholders come in with a purpose and move their funds accordingly. Today, their funds have found their way to your institution. Show them why they should keep those funds with you after the CD matures. Take the time to understand and respond to their financial goals. Offer guidance to maximize their deposit yield. See what other higher-value products they may be interested in and provide proactive next steps, such as CD renewal, as maturity dates approach to keep the account active.
Incentive-driven accounts
For the accountholders drawn in by cash bonuses and rewards, it’s important to activate them early on and sustain the momentum. Make enrolling in digital banking and direct deposit easy and part of the initial onboarding process. Take note of their financial needs, goals, and realities and offer products accordingly. The sooner you get them transacting, the more likely they are to keep transacting after the initial promotional period.
Additionally, make sure you budget properly for both rate- and incentive-driven accountholders. Know what you’re willing and able to pay between rates and rewards, when you’ll need those funds, and when a portion of those deposits leave your institution.
Indirect-loan accounts
First impressions can make a difference. Don’t let the first thing these borrowers receive from you be a “Payment Due” notice. Instead, introduce yourself before the first payment rolls around. Help them set up digital banking so they can easily make payments and view statements within your ecosystem. The key is to establish a real connection, then build and maintain engagement to deepen that relationship over time.
With these measures in place, you can be confident that the deposit growth you’re seeing is the real deal, not a mirage that clears to reveal a surprising net loss.
Watch the full chat for even more insights.
Believe it or not, this is just the tip of the iceberg when it comes to deposit growth. Check out the full session for even more ways to effectively grow deposits and win relationships through every rate environment.
