Money market share accounts (MMAs) are great products for credit unions and members alike. For members, MMAs often have higher dividend rates than other savings products. For credit unions, MMAs translate to sticky members, diversified share portfolios,and strong core deposits.
With 1,094 credit unions reporting data for 1Q 2017 in Callahan & Associates’ Peer-to-Peer, one credit union in particular Granite Credit Union ($418.5M,Salt Lake City, UT) had strong MMA performance in the first quarter of the year.
Originally founded in 1935 as a credit union for teachers in the Granite School District, Granite Credit Union now serves residents of Salt Lake County and various membership groups in the region. MMAs account for 41.4% of the total share portfolio, nearlytwice the industry average, with $154.6M in money market shares. Granite saw a $3.2 million positive net change in its MMA portfolio in the first quarter alone.
Below, compare Granite’s share composition (Graph 1) against the credit union industry (Graph 2).
The trade-off mostly comes from regular shares, as regular shares at Granite are 24.1% of the share portfolio compared to 35.1% for the industry. Granite members tend to favor MMA accounts over its regular savings product. Why? Perhaps, it is due to Granite’stiered MMA approach. Members can start off with a dividend rate identical to the regular savings account, but when the accounts reach certain levels, the dividend rates increase.
For instance, a member can start with $500 in an MMA account, earning 0.10% interest. As she continues to save and her MMA account reaches $2,500, then she would now enjoy a 0.15% rate for the same account. Later down the road, when her account hits $25,000,the dividend rate would increase again to 0.20%. In comparison, if the same member grew her savings in a regular share account, the dividend rate would stay at 0.10% regardless of the balance.
Members can start small and work their way up. This prevents intimidation about meeting minimum balance thresholds and allows younger members, or older first-time MMA savers, to grow into the product. Here is a closer look at Granite’s tiered MMAsystem.
TIERD MMA SYSTEM
FOR GRANITE CREDIT UNION | DATA AS OF 05.01.17
Minimum |
Dividend Rate |
|---|---|
| $25 | 0.10% |
| $2,500 | 0.15% |
| $25,000 | 0.20% |
| $100,000 | 0.25% |
Source: Callahan & Associates.
2017 Callahan & Associates, Inc. All rights reserved
Granite’s tiered program is emblematic of the credit union difference. Members can open an MMA account for $25 with no penalty for low balances. On the other hand, Bank of America, according to its website, generally requires a minimum balance of $2,500 to maintain a money market account. BOA also charges $12 a month for MMA accounts that fall below this minimum threshold. Not only that, but the rates at this big bank maxout at 0.06%.
Granite’s tiered strategy is helping grow deposits and has not hurt credit union operations. The credit union has seen total shares expand 6.4% year-over-year. Even with this program, Granite has a 3.09% interest margin and a 0.90% ROA. Its membersare actively engaged in lending activities as well, with penetration rates of 3.2% for first mortgages and 24.8% for auto loans.
While Granite may not be the only financial institution with a tiered MMA structure, they have a low threshold to get started, nicely defined tiers, and the convenience of keeping savings in the same account as it grows. For these reasons and more, Graniteis setting a good example of a credit union succeeding at capturing MMA deposits. Granite members are rewarded as their ties to the credit union get stronger, and in turn, the credit union has loyal, active members.