Deposit Reclassification Cuts Costs, Improves Service at UFCU

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ST. JOSEPH, Mich. -- Close observation of member share draft account activity, combined with the funds management capabilities of a sophisticated software program helped United Federal Credit Union reduce its Federal Reserve deposit obligations and free up more funds to better serve its 130,000 members worldwide.

Last year, the $1.87 billion CU began using a deposit reclassification program offered by CetoLogic, an Atlanta-based software firm. The program's capabilities enable the UFCU to make the most of the money it holds on deposit, according to Douglas Ceto, the firm's president and CEO.

"Deposit reclassification allows an institution to implement a retail sweep account program that can sweep share account money back and forth between deposit and savings accounts," Ceto said. "The goal is to reduce the Federal Reserve requirement for money on deposit. The funds they formerly kept on reserve come back immediately, allowing the institution to reinvest the money through loans and other services."

The Regulation D program, compliant with Federal Reserve Board requirements, was just what UFCU was looking for, according to Barb Najacht, the credit union's accounting manager.

"Many of our members changed their banking behaviors following the Great Recession," Najacht said. "More and more members were making deposits and then letting those funds sit and earn interest over time. This flush of deposits resulted in a higher reserve balance, but unfortunately we could not capitalize on these illiquid, Fed-held funds."

UFCU offers a checking account that pays high interest rates and offers incentives on balances up to $25,000, which led to its use among many members as a savings account, Najacht explained. The CetoLogic program analyzes member account history, determines how much of each checking account balance is a non-transaction balance, then sweeps those funds into a savings account to eliminate the need to have corresponding reserve funds on deposit with the Fed.

"At first, deposit reclassification seemed too good to be true, but I am happy to report that was not the case," said Najacht.

UFCU's reserve requirement was reduced practically to zero and the credit union was able to reclaim some $20 million tied up at the Fed and reinvest those funds in the communities the credit union serves, she added.

The $22,000 cost of the CetoLogic program was recouped in the first year, according to Najacht, and the program is still underway. Better use of funds that otherwise would be illiquid due to Federal Reserve requirements makes good business sense and benefits both the institution and the members it serves, she added.

"The credit union is continuously looking for ways to partner with the membership and share the benefits," Najacht said. "This product definitely helps us do that, with more liquid funds, providing better rates for our members and continuing to be a strong financial institution.

"It's a win/win for both the credit union and the member," she added.

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