The tremendous share growth of the past two years has been
well documented. What has not been as widely publicized, however,
is that the majority of these shares were deposited in short-term
accounts, like money market and general savings accounts.
These short-term deposits could leave as soon as the market
rebounds or interest rates rise. Because of this, credit unions
are preparing now to position themselves, primarily through
more sophisticated member services, to retain this influx
The growth in shares has come both from existing members
and new members. It is easy enough to see why, as credit unions
offer extremely competitive rates in a low interest rate environment,
especially for short-term accounts. For example, the average
money market rate in credit unions is 1.7%, which is high
when compared to the Fed overnight rate of 1.25%. As a result,
80% of new shares at credit unions have been placed in short
term accounts over the last two years. This expansion, fueled
by short-term account growth, is good for credit unions; it
is, however, potentially short-lived growth.
Credit unions need to make these new members and share dollars less temporary. Once interest rates rise, and they will eventually, some of the competitive rate advantages credit unions can offer in a low-rate environment will disappear. At that point they compete with larger institutions capable of offering much more sophisticated member services.
Credit unions have never been on the cutting edge with their product and service offerings, mostly because they have adopted a second-to-market strategy better suited to their cooperative, and somewhat cost-restrained, business model. Lacking the resources and budget to properly research the most innovative services, credit unions often rely on service providers to help them implement services with reasonable cost structures that are low-risk. However, they still want those services to be advanced enough that the credit union can compete in the race, even if they cannot lead the charge.
As such, credit unions will find affordable, yet mature member services highly desirable as they attempt to position themselves for future competition. These member services will be integral to maintaining the loyalty of new members and old members who expanded their relationship while rates were low. To provide a credit union value, you must enable them to compete for loyalty through service sophistication.