Share Drafts: The Life Raft for Many Credit Unions

Share drafts used to be the entry level account credit unions used to attract member in order to market other services. Today however share drafts are important because of the non-interest income associated with them.


Traditionally, credit unions have seen the share draft accounts as a nice way to introduce the credit union to its members. The credit union would receive a long-term account that would provide low cost of funds deposits that generally require little maintenance. The credit union would then be able to market other products and services to that member and the relationship would increase in value.

Share Draft Fee Income Increasing…

Based on the most recent Callahan & Associates non-interest income survey, fees around share drafts were the largest source of non-interest income. The survey shows nearly 28 percent of non-interest income came from courtesy pay and NSF fees. If for all credit unions, these fees did make up 28 percent of fee income, in the first quarter credit unions charged $741 million in share draft related fees. Non-interest income on these accounts is becoming the life raft keeping many credit unions afloat.

Today however, share drafts and all liabilities are becoming more rate sensitive. This is because competitors such as ING Direct have started to pay such high rates on traditional savings accounts. Additionally, given the shape of the yield curve, credit unions net interest margins are getting squeezed.

And Increasingly Necessary

Thus, in the first quarter of 2006, 44 percent of all credit unions would have had negative income if it was not for fee income. With higher deposits rates from competition, credit unions need to pay higher rates on share drafts in order to keep the accounts because they generate so much non-interest income.

The data is clear that more and more credit unions are relying on non-interest income to keep their earnings positive. Many critics have argued that fees associated with share draft accounts are not in the members’ best interest. However, unprofitable credit unions may not be in the members’ best interest either.

For nearly every credit union, non-interest income has become a necessity for profitability. To learn more, Callahan & Associates is hosting a webinar on Member-Friendly Non-interest Income Sources.




July 10, 2006


  • The statement, "credit unions need to pay higher rates on share drafts in order to keep the accounts because they generate so much non-interest income" contains questionable logic. Share drafts are a transaction account and are NOT as rate sensitive as regular shares. Paying increased dividend rates to retain is a waste of money. If you want to stabilize or grow share drafts, make sure you first have non-cash service benefits such as free ATM transactions, free Bill-Pay and a well functioning website.
    John Nilles, RECU