WAUSAU, Wis.-Seeking to grab customers from banks and build stronger relationships with existing members, Connexus Credit Union is paying 5.15% APY on its new free, no-minimum-balance checking account.
Called Xtraordinary Checking, the account is designed to grab the attention of investors nationwide and "show our members we can be their primary financial institution," said Jackie Edwards, business development manager at the $240-million Connexus.
Xtraordinary Checking requires members to take e-statements, perform one online bill pay per month, conduct 15 "non-PIN" transactions, and one ACH credit, Edwards said. "If members fall below any of those requirement levels, their interest rate for the month is reduced to .25% and they lose their ATM surcharge rebates of up to $25."
That's a strong incentive to stay active, shared Edwards, who pointed out the account also offers a free Visa check card, ID theft protection, and a .50% rate reduction on loans.
Connexus settled on the 5.15% rate because its members are nationwide and it understands it's competing with online investment companies such as Charles Schwab and ING. Connexus' primary FOM is employees of Liberty Mutual Insurance Company, but anyone in the U.S. can join the Connexus Association, a charitable organization, and become eligible.
Having only two primary locations besides its Wausau headquarters, Connexus offers little branch access, said Edwards, who acknowledged that has slowed checking growth over the years. With a 30% checking penetration in the 16,124 households the credit union serves, Xtraordinary Checking is expected to move that number higher and contribute to some aggressive growth and deposit goals this year, explained Val Mindak, EVP and COO, who declined to share those objectives.
Paying 5.15% only on balances up to $25,000 helps manage interest rate risk, according to Mindak, who added that the credit union has completed an analysis of how many members will qualify for the high rate each month. Connexus pays .25% on the portion of Xtraordinary Checking balances that exceed $25,000. "We have done an in-depth assessment," said Mindak, who declined to share its projections. "It's all part of our pricing strategy, and that includes how long we want to keep this type of account going. I know that many financials offering this type of product hope they have a high number of non-qualifiers to make this work. That's not our angle. We expect a high percentage of our members to qualify. If we can have members actively using their accounts, have strong card usage, strong direct deposit usage, bill pay and e-statements, we know we're going to have much more opportunity with them."
Connexus is optimistic based on last year's success with Rewards Checking, which attracted 1,400 new checking accounts. Rewards Checking has fewer requirements than Xtraordinary Checking, and members earn a 3.5% interest rate and ATM surcharge rebates by taking e-statements, and completing ten transactions per month and one ACH credit or debit. Bill pay is not required.
"You have to constantly reinvent your products to get members excited," said Mindak. "And we know it's going to take a really high rate for someone in California to take a checking account with a credit union in Wausau."
The credit union is coming off a good year in which it set "record growth totals," Edwards said. According to its latest NCUA Call Report, after flat growth in 2007, Connexus grew by more than $30 million in assets in 2008. Deposit growth was up by more than $17 million last year, and total loans increased by more than $20 million. Capital remained level at more than 9%.
Both Edwards and Mindak emphasized that Xtraordinary Checking will not be a loss leader and will generate revenue. No adjustments in loan pricing to offset the high rate have been made. At press time Connexus charged 5.75% APR for a 30-year fixed rate mortgage, 4.5% APR for a home equity line of credit, and 6.75% APR for a 60-month auto loan.
Xtraordinary Checking attracted 56 new accounts its first week, according to Edwards who was pleased with the results. "That's just from cross selling," she said. "We have yet to advertise."
