The Evolution of COVID Surge Deposits: From Stimulus to Stability
The Evolution of COVID Surge Deposits: From Stimulus to Stability
Why did we care so much about COVID surge deposits? Because when billions of dollars suddenly appear on bank & credit union balance sheets, it’s natural to ask whether they’ll persist – or vanish just as quickly.
Between 2020 and 2021, institutions experienced an unprecedented wave of deposit growth fueled by government stimulus checks, PPP funding, and sharp declines in consumer spending. These deposits weren’t tied to organic relationship growth or traditional banking activity. Instead, they were byproducts of a highly unusual economic environment. The core question became: Can we treat these balances like “normal” core deposits, or are they something different?
From a risk management perspective, the stakes were high. Misclassifying surge balances could lead to flawed assumptions about funding stability, deposit betas, and liquidity availability, especially in a rising rate environment. This is why DCG built a model to identify and track COVID surge deposits across our Cross-Institution Analysis Dataset, and why we watched closely as those balances evolved.
This article revisits that analysis by examining how COVID surge balances behaved, whether the early concerns were justified, and whether those deposits should still be treated as distinct from core. While our focus here is on pandemic-driven inflows, it’s important to note that other types of surge, such as those driven by aggressive rate positioning, competitor pricing, or regional disruptions, may behave differently and could still warrant separate modeling considerations.
The Story Behind COVID Surge Deposits
The story of COVID surge deposits begins not with interest rates or pricing strategies, but with policy and behavior and the unprecedented fiscal and social responses to the pandemic.
Phase 1: The Immediate Response (March–April 2020)
In March 2020, as the U.S. economy shut down almost overnight, the federal government launched a wave of emergency relief efforts. The CARES Act, signed into law on 3/27/2020, delivered the first round of Economic Impact Payments (EIPs): $1,200 per eligible adult and $500 per qualifying child. These direct deposits began hitting consumer accounts by mid-April and were followed almost immediately by the Paycheck Protection Program (PPP), which rolled out its first round of small business loans on 4/3/2020.
The result was a massive and rapid inflow of cash onto bank and credit union balance sheets. Meanwhile, consumer spending plummeted as lockdowns took hold and uncertainty gripped the country. As a result, the first major wave of deposit growth was not only large, but it was also sticky – at least in the short term.
Phase 2: Continued Support and Suppressed Spending (May–December 2020)
Through the summer of 2020, deposit growth continued. A second round of PPP funding launched in late April, keeping commercial balances elevated. Meanwhile, unemployment benefits were extended and enhanced, and with travel, entertainment, and services restricted, households saved at historic levels. The personal savings rate, typically in the 7–9% range, spiked to 32.0% in April 2020.
These conditions reinforced the deposit boom: stimulus in, limited outlets for spending out.
Phase 3: Renewed Stimulus and the Final Surge (January–March 2021)
As COVID cases rose again in late 2020, Congress passed another round of relief. In January 2021, individuals received a second stimulus payment of $600, followed by a third, larger round of $1,400 per person in March 2021 under the American Rescue Plan.
By this point, institutions were seeing deposit levels that far exceeded historical growth trends. Much of this liquidity had no clear tie to long-term banking relationships or traditional account activity. Instead, it reflected a unique confluence of fiscal policy, economic anxiety, and consumption paralysis.
Would This Deposit Inflow Stay… Or Go?
Across the DCG dataset, there was a sizable and synchronized rise in deposit balances beginning in Q2 2020 and continuing through early 2021. This surge affected nearly all institutions, regardless of size, charter, or geography, and introduced a central risk management challenge: Would these funds behave like true core deposits, or would they exit just as quickly as they arrived?
That question formed the basis for DCG’s COVID surge modeling efforts and set the stage for the analysis that follows.
Source: DCG Deposits360°® Data Explorer
As pandemic-era deposit balances swelled, so did industry awareness. A quick look at Google Trends shows that the search term “Deposit Surge” spiked in early 2022, signaling a clear shift: this wasn’t just a curiosity; it had become a strategic concern. Bankers, regulators, and analysts increasingly asked the same question: How much of this liquidity is real and how much will stick around?
At DCG, we saw this concern play out across our client conversations. Institutions were flush with deposits yet unsure how stable those balances truly were. The situation demanded more than anecdotal interpretation; it required a structured approach to quantify what was temporary and what may be more likely to endure.
A Deposit Model Built for an Unusual Question
To help institutions quantify and analyze pandemic-era deposit growth, DCG introduced the COVID NMD Surge model in the Deposits360°® platform. Using 3/31/2020 as the baseline, the model applies DCG’s Decay and Growth framework to estimate where deposit balances would have been under normal conditions. The gap between that forecast and actual balances became our measure of the “surge.”
Beyond identification, the model allows institutions to project runoff under various scenarios, including flat rates, a +200bps environment, or custom annual growth rates. Users could also apply institution-specific assumptions to refine how much of the remaining surge might run off and over what timeline.
The model supported broader risk analysis by updating average life and decay assumptions for use in economic value and interest rate risk modeling. Ultimately, it offered a practical way to model the uncertain, turning COVID-era deposit inflows into structured scenario-ready data.
Source: DCG Deposits360°® COVID NMD Surge
From Surge Deposit to Core Deposit
Using the COVID NMD Surge Model, DCG closely tracked how balances evolved relative to the model’s forecasts, and the results largely validated our original hypothesis. Pandemic-era deposits initially behaved differently, but that distinction didn’t persist.
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The Peak: March 2022 The model showed that surge balances reached their high point in March 2022, accounting for 26% of total NMDs. This marked the end of major stimulus disbursements and came just before the Federal Reserve began its tightening cycle.
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The Decline: April 2022 to July 2023 As expected, we saw a rapid runoff during this period. Stimulus funds were spent down, PPP balances were forgiven or withdrawn, and consumers began re-engaging with the broader economy. Simultaneously, rising interest rates led more rate-sensitive funds to migrate toward higher-yielding alternatives, including CDs. During this 15-month window, surge balances fell from 26% to 8%.
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The Plateau: July 2023 to June 2025 After that initial runoff, balances began to stabilize. The decline slowed significantly from 8% to 7% over a 23-month period, suggesting that what remained was no longer acting like transient money. These funds were behaving like core.
This trend is also evident at the account level. The DCG dataset tracks average checking account balances for both banks and credit unions. During the COVID period, average balances surged well above historical norms. But as of late 2024, those averages had fully reverted to their long-run trends dating back to 2007. The reversion suggests that not only have total surge balances leveled off, but the underlying deposit behavior at the customer level has normalized, as well.
Source: DCG Deposits360°® Data Explorer
Perhaps unsurprisingly, this trend is also reflected at the macro level. According to Federal Reserve data, the M2 money supply surged during the height of the pandemic but has since declined and largely returned to its long-run growth trajectory. This reinforces the view that much of the excess liquidity has either exited the system or stabilized, mirroring what we see within bank and credit union deposit bases.
Source: Board of Governors of the Federal Reserve System (US) via FRED®
While every institution experienced its own unique path, the broad pattern is clear: the excess has worked its way out. What remains is not behaving like “surge” at all.
Where We Stand Today: Surge Deposits Are Sticking
Three years removed from the start of DCG’s analysis, the data now tells a consistent story: the COVID deposit surge has faded. The balances that flooded in during 2020 and 2021 have either exited the system or remained long enough to demonstrate core-like behavior. They’ve persisted through spending rebounds, rising interest rates, and shifting deposit competition. In short, they’ve stuck.
So what now?
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Retire the Surge Classification There is no longer a strong case for tracking COVID surge deposits as a separate modeling category. The balances that remain have stabilized and no longer exhibit the behavioral outliers that defined the early post-stimulus period. It’s time to fold them into standard non-maturity deposit assumptions.
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Revisit Decay and Duration Assumptions If your institution has been layering in shorter average lives or elevated decay rates to account for COVID-related uncertainty, consider revisiting those adjustments. Ongoing analysis should reflect updated behavior and not outdated concerns.
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Refocus on Organic Growth With the pandemic-era liquidity wave now in the past, the focus must be on fundamentals: cultivating long-term deposit relationships, understanding true rate sensitivity, and pricing with intent.
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Keep the Playbook but Close the Chapter The modeling work that institutions performed in response to COVID was valuable and the insights remain useful should similar conditions arise in the future. But as of today, there should be no reason to treat COVID-era deposits as a standing exception.
How Deposit Strategy Should Evolve
The COVID deposit surge was a rare, unprecedented phenomenon, and it required close scrutiny. DCG’s modeling helped identify the potential risks and trajectory of those funds, and the predictions largely held true.
But now, three years removed from the peak, the data tells a clear story: while each institution’s experience is unique, there is no longer a strong case for tracking COVID surge deposits separately. For most banks and credit unions, these balances have either exited the system or demonstrated the stability characteristic of true core funding.
It’s time to close the book on this phase and turn toward the next evolution in funding strategy.
For institutions looking to monitor these behavioral shifts more precisely, Deposits360° offers flexible modeling tools to track balance transitions and stress-test liquidity under evolving conditions. Contact DCG to learn more.
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ABOUT THE AUTHOR
Michael Hunker is a Solutions Consultant at Darling Consulting Group. He has a comprehensive background in risk management, financial analysis, and data analytics. In his role, he leverages his expertise to help financial institutions optimize their deposit strategies and manage risks effectively. He presents sophisticated deposit model results to senior executives and provides in-depth training on DCG's software solutions.
Before joining DCG, Michael was an Asset Liability Manager at First Tech Federal Credit Union, where he played a pivotal role in implementing an ALM modeling platform and managing a substantial investment portfolio. His responsibilities included presenting critical liquidity and interest rate risk analyses to the executive team and ensuring compliance with regulatory standards.
Michael holds a Bachelor of Science in Accounting and a Master of Science in Finance from Pacific University, and he is a Certified Treasury Professional (CTP).