Credit unions are scrambling for new ways to gather deposits in an increasingly competitive environment.
United Federal Credit Union of St. Joseph, Mich., has been successful in this area by revamping its checking accounts and other deposit products to make them more attractive to members. That’s a strategy that other credit unions could try, though executives still need to be thoughtful about their growth, experts said.
Credit unions are trying “to create enough of a ‘wow’ factor to get someone to move their checking account which is, by its nature, a very sticky account that is hard to get someone to move,” said Dennis Dollar, a former NCUA chairman and a principal partner at the consulting firm Dollar Associates.
Over the past few years, deposit growth at credit unions has been slow on average, especially compared to loan growth rates, said Sam Taft, associate vice president of analytics at Callahan Associates.
“Three to five years ago, liquidity pressures … were not an issue for most credit unions, and with loan demand extremely robust throughout those years, most institutions were focused on extending credit to their members and far less focused on developing a sustainable deposit strategy,” he added.
But that has changed now as the industry’s loan to share ratio reached 85.6% at the end of 2018, up three percentage points from a year earlier. Because of that, credit unions are looking for ways to boost funding to help support loan growth.
Nagendra Sastry, vice president at EXL Analytics, an operations management and analytics firm, suggests that credit unions seeking to increase deposits should focus on retaining existing members by offering attractive products. Redesigning existing products with new features, such as introducing tiered rates for deposit balances, and providing more personalized offers could be part of that strategy.
The $2.8 billion-asset United has done this by introducing or relaunching four deposit products over the past two years that are easy to understand and offer various perks. That has resulted in its deposits climbing by 10.4% in 2018, compared with an industry average of 5.3%, according to United.
United noted that its total checking balances rose by 4.8% in 2018, while the credit union averaged 490 new accounts per month.
Erin Hennessy, United’s chief innovation and marketing officer, explained that United’s main goal was to simplify the way the existing accounts were structured.
“Prior to the relaunch of the checking suite, members had multiple account choices with unclear defined value,” she said. “When asked to choose which account they preferred, members often had a hard time understanding the differences or how to earn the benefits.”
For example, if a member uses their checking account often to pay for bills and daily expenses and if they like earning points then the “rewards checking” product makes the most sense. For members with higher balances in their checking accounts who prefer to earn dividends, then the “ultra checking” product is likely the best fit.
“Not only did people better understand the account options, it was much clearer to them how to either earn their points or their dividends” she said. “We removed any complexity that would prevent them from using their checking account the way they wished to use it.”
New members also added more than $148 million in deposits largely through share certificates and checking and savings accounts, Hennessy said. That accounted for 50% of the deposit growth.
Hennessy said that two products added in 2018 – the liquid share certificate account and the “bonus builder” money market account – gave United the opportunity to acquire new, sticky deposits without being too reliant on just one product. In the first four months of offering the bonus builder account, United had 531 new accounts opened and an end-of-year balance over $87 million.
Other credit unions could be successful with a similar strategy to United, experts said. Ensuring the account offerings have options that members want can be a “major differentiator between credit union checking products and banks that are pulling back on checking features, including free checking at times,” Dollar said.
Brian Turner, president of Meridian Economics, said that United’s deposit growth strategy coincided with its earnings and long-term net worth outlook. Any strategic growth needs to generate enough earnings and equity to avoid diluting the credit union’s net worth, he added. United was able to do that with only modest dilution to is net worth, which dropped from 10.1% to 9.9%, Turner said.
Every credit union, Turner added, must similarly develop a product line appropriate for its particular field of membership and market segment.
“This product development should focus on the marginal costs relative to other alternatives and assess to what extent, if any, new product promotions might have on prevailing accounts,” Turner said. “So before any credit union blindly follows what might be another’s successful growth formula for loans or shares, it must determine the ultimate financial and operational benefit/consequence derived from growth other than growing just for growth sake.”
