Rising Rates Hampering Share Growth

Rising interest rates and slowing membership growth are hindering share growth. Find out what questions to ask when developing a successful share deposit strategy.


Credit unions are competing in a rising interest rate environment during a period of slowing balance sheet growth, says Chip Filson, president of Callahan & Associates, Inc. Third quarter share growth dropped from 5.1% -- down from 16.6% in the second quarter of 2002.

Filson analyzed the current state of the industry last week at Callahan’s quarterly third quarter Trendwatch call. Credit unions are in a period of slowing balance sheet growth – the lowest share growth since Dec. 2000, he said. See graph below.

One reason Filson cited for slowing share growth is that, as of Sept. 30, credit unions have barely adjusted their rates. The Fed funds rates increased 50 basis points since June, but money market rates for credit unions only rose five basis points. "Only 30% of credit unions that offer money market funds have moved up from the June 30 level and 10% moved down," said Filson.

Source: Callahan & Associates, Sept. 30, 2004

Slowing membership growth creates added challenge

Slowing membership growth is also putting a strain on share growth. Nearly half of the nation’s credit unions lost members over the 12-month period ending Sept. 30, 2004. With only 2,817 of the 9,311 credit unions growing membership by 2% or more, the rate of membership growth continued to decline.

Callahan analysts recommend credit union executives seeking ways to achieve growth in the current environment examine:

  • Why is share growth still lagging behind loan growth?
  • The criteria that share pricing decision is based upon to address liquidity and ALM concerns
  • Adjusting share deposit rates to manage the balance sheet

Credit Union 12-month Share Growth
All U.S. Credit Unions as of September 30, 2004

3/02 6/02 9/02 12/02 3/03 6/03 9/03 12/03 3/04 6/04 9/04

Source: Callahan & Associates, Sept. 30, 2004




Dec. 13, 2004


  • Great reserarch numbers on growth.
  • What have bank deposits done over this same period, I would guess that the low rate environment has a great deal to do with the slow down in deposit growth.
  • The stats are great but we need someone to analyses why member growth and share growth are so slow, because even though CUs have not raised their rates they are still paying more than banks.
  • Recent data has shown that there is not a strong correlation between core deposits in credit union and banks. Other underlying causes, such as the upturn in the stock market, credit unions' delayed responsiveness to rising interest rates, and aging demographics, are more likely attributable to the decline in share growth. Since many credit unions have a difficult time competing with banks on convenience or brand recognition, they tend to leverage their superior rates as a way of gaining deposits. Some credit unions now attempt to lure new business by promoting highest rate guarantees and above-market rates on CDs and money market accounts. These tactics are necessary for organizations that do not have the advantage of large-scale corporate visibility, or which do not offer the same convenience in terms of branch network size or service offerings. -- Scott Homa, Callahan & Associates Industry and Analysis
  • In regards to the slow member growth, how many of the credit union experiencing negative growth are cleaning up inactive accounts to reduce operating expenses vs. those who have members actively closing accounts?
  • While most credit unions are offering higher savings more than the traditional big banks, one only has to look to some of the community banks and institutions that are primarily online, such as Countrywide Bank & ING Direct. These financial institutions blow credit unions out of the water.