Credit Unions Focus on Share Growth as Fed Decreases Rates

As the Federal Funds target rate drops, credit unions have to reconsider their own pricing strategies. These options may help credit unions drive share growth.


Credit union share growth for the twelve months ended June 2007 was 6.1%. This was a step in the right direction for a component of the credit union balance sheet that had been watching its growth trail off steadily for the past few years. This growth can be attributed to varied savings vehicle offerings and credit unions taking a pro-active approach to driving share balances. In the current market environment, one in which a recent cut in the Federal Funds target rate is expected to be followed by further cuts, credit unions will need to step up efforts even further to continue this positive share growth.

Taking Alternative Measures to Drive Share Growth

“Credit unions are beginning to see a change in the mix of funding as loan yields come down,” says Dr. William McGuire, CEO of McGuire Performance Solutions. As many credit unions now struggle with the decision as to whether or not to follow the Fed’s lead and cut their rates, some credit unions do not have that luxury. “Not all credit unions raised rates in step with the Fed, and now if you never raised rates, how can you cut them?” asks McGuire.

While there is no doubt that pricing strategies are key for credit union share growth, now that interest rates are falling, pricing strategies by themselves may not be the only answer. Credit unions can continue the trend of increasing share growth by pairing competitive pricing strategies with other options. “Many credit unions have placed a strong emphasis on the ‘old fashioned service’ that credit unions can offer in the way that they treat their members,” explains McGuire, “Other credit unions have begun to expand on this component of member relationships by offering niche products that cater to a particular group, usually a major SEG”.

An Increased Focus on Pricing Strategies

When offering a more unique savings vehicle, credit unions are trying to tap into a part of the market that is not 100% satisfied with the current offerings. Credit unions may chose to focus on one particular group or demographic, or they can offer other options based on a member’s risk and return needs. “Credit unions can offer savings vehicles tied to longer-term Treasury Rates,” says McGuire, “this offers members an account that has the feel of an investment but has less risk associated with it.”

An expanded series of offerings and an increased focus on the benefits of credit union service may play a strong role in bringing new members into the credit union, however this is only one piece of the puzzle for share growth. Credit unions also need to keep a close eye on their pricing strategies. While many individuals have become credit union members for the benefits a credit union can offer in terms of service and member relationships, credit unions cannot ignore the fact that another substantial component of membership is comprised of those who are simply shopping for the best deal. By offering competitive rates and having a sound pricing strategy, credit unions can not only bring more of those members in, but can attempt to lure in some of the accounts those members may have at other financial institutions.




Oct. 22, 2007


  • Good article. Author may want to explore wholesale funding (borrowing) as a component of how credit unions fund thier balance sheet. Trends in that area would be interesting