Let’s face it; the credit union industry is struggling to grow shares, specifically its core deposits. Strong loan growth continues, and the loan-to-share ratio has reached 75.9 percent, its highest level since 2000.
While some executives argue that a slowdown in share growth is cyclical, others are taking a proactive stance and are trying various strategies to augment savings rates in categories such as money market share accounts and regular shares, which account for 50.2 percent of total shares as of June 2005.
Below are six approaches that leading credit unions are employing to position their various share accounts to attract new deposits.
- Tiered pricing — While most credit unions offer a form of tiered pricing, several are adding new upper tiers. The 80/20 rule applies in most share deposit scenarios, and credit unions are rewarding members with larger share balances. Oregon Community Credit Union ($724M in Eugene, OR) recently added a $250,000-plus tier that currently pays 3.25 percent while March Community Credit Union ($404M in Moreno Valley, CA) just added a $100,000-plus tier with a 2.50 percent rate.
Additionally, credit unions can increase the rates on their tiered accounts in varying degrees. “We measure the price elasticity of the money market tiers, and increase them in different amounts when rates rise,” said David Eberstein, vice president of finance and chief financial officer at Ventura County Credit Union ($368M in Ventura, CA).
- Monitor spread between share categories — There are two approaches regarding monitoring the spread between share accounts. One method is to maintain a narrow spread between the money market share and share certificates accounts. March Community Credit Union tries to sustain a 50 basis points spread between these accounts. “Our credit union forces the member to decide whether it is more important to receive a higher rate or have additional liquidity,” said CEO Robert Cameron. “If the spread is too wide, members will more often than not put their money in share certificates.”
However, other credit unions believe there are two member segments who use these products, and price them separately based on the bank competition. One segment shops around for various share certificates rates while the other is less rate sensitive and places a significant amount of money in a money market share account with the intent of using it in the near future. “We do not compare our money market share and share certificates rates to each other as a result,” said Peter Paulson, executive vice president of Corporate America Family Federal Credit Union ($618M in Elgin, IL). “When rates were low, everything was compressed together, but the gap should widen as Fed rates continue to climb.”
- Timing regarding Fed rates movements — Most credit unions are in a lag strategy for their regular share accounts due to net interest margin pressures from the flat yield curve that has not yet produced a pickup in asset yields. Other credit unions tie their money market share rates to the three-month Treasury bill or to the one-month Constant Maturity Treasury. “We have found that we are attracting new money that our members had at other financial institutions with our Treasury Money Market Account,” said Steve Stapp, executive vice president and chief financial officer of Redwood Credit Union ($1.2B in Santa Rosa, CA).
- Effective marketing promotions — Credit unions have had significant success by advertising just their rates in the local newspapers and even on television if they have the marketing budget. However, other credit unions run 10- or 14-day newspaper specials with laddered promotions. “To receive our best rate, the member needs to open a checking account with direct deposit,” said Cameron. “We structure our promotions based on liquidity needs.”
- Employee group incentives — Many credit unions have member and employee referral programs. March Community Credit Union decided to structure a portion of its staff incentive program a little differently by basing it on aggregate share balances. The incentive program places more emphasis on its money market share and checking account balances since they are a lower cost source of funds than share certificates. “We structure the program in this manner because it is more difficult to open a money market share and/or checking account than it is to open a share certificate account,” said Cameron.
- Bonus dividends — Various credit unions have implemented a bonus dividend as either a flat dollar amount across the board or in the form of a higher rate for a 30-day period. It reinforces the value for current members as they see the credit union making an effort to return more value to them.
These are several strategies that have shown demonstrated results. Credit unions can choose to wait until the slow share growth cycle finishes, or actively pursue new deposits.