HOUSTON -
When people spend everything they earn (and then some) year after year, it gets harder to increase assets with the usual certificate offer, noted Joe Gillen, president of Pinnacle Financial Strategies, Houston, a consulting company with a 30% CU customer base. "People are looking for higher yields," said Gillen, "so credit unions will have to find more products and services their members can really use. Older Americans, who typically buy CDs, are on the wane, and I think we'll see a faster evolution to the e-world." That evolution may be gaining momentum, and credit unions are morphing to the web as a standard marketing and delivery channel, but it's still old-fashioned APY that rules for the most part. That's what Julie Anne Callis, EVP and COO at KeyPoint CU in Santa Clara, Calif., believes brought in $80 million in new money in just six weeks over the summer with a 6% APY jumbo CD promotion. "It's a seven-month CD with liquidity, where the top rate was a blended 5.80% APY that put us 30 basis points above ING Direct or HSBC's 6.00% APY rate, and we're now defending it." Keeping the money once you get it can be a challenge, Callis continued, because Internet-based competitors such as ING Direct and HSBC can lend money in Europe at much higher rates that, in turn, can be used to push up their own deposit rates. "They are serious commercial lenders," added Callis.
Many of the fiercest competitors have long had another advantage: greater efficiencies as a result of not having to support a network of brick-and-mortar branches. But some of them are now also creating a retail presence in Callis' market area, with small storefront branches. "It's disconcerting," she said. "It's a macro issue for all financial institutions. It's not just a concern for community banks and credit unions. This is not temporary; it's here to stay."
How Do You Compete Against Deposit Rates on 'Steroids?'
ING Direct is now offering its Orange Savings Account with a no-balance minimum and paying 4.5% APY. Not to be outdone, HSBC is featuring a six-nine month CD with a $1,000 minimum paying 5.25% APY. A regular savings account pays 1% and the minimum is $1-$25,000. "HSBC is ING on steroids," said Callis. "This is about market share and they have very deep pockets."
But there is something left of the old credit union fight, apparently, as Callis reported that the CD promotion brought in 300 new members, many of whom deposited funds they previously had on deposit at some of those other providers. In Silicon Valley, where KeyPoint Credit Union members are at ease with Internet banking and investing, 90% of members are direct deposit.
Among the unique deposit offerings was created by Proponent FCU, Nutley, N.J., which, rather than rely on savvy members to "ladder" their certificate terms, did the laddering for them. The CU's Combo Certificate program was a three-six-nine and 12-month CD package deal. After nine months, a CD matures every 90-days, earning a one-year rate. The $400-million Proponent FCU, which was founded to serve Roche Pharmaceuticals but now serves 150 SEGs, attracted $5-million in deposits during the six months it was promoted in 2006, $3.5 million of which was new money.
"It's tapered off since, due mostly to interest rates that have kind of ruined the program a bit, but I think once rates get back to normal it'll take off again," said Marketing Director Bill Stavros. "Our biggest challenge is growing deposits, no doubt. There is just so much competition. There is a large Commerce Bank within a few miles of us, and then there is ING, etc. Members want liquidity, high yield and protection from rate volatility. We're going to roll out a new program in the spring that's tied to payroll deposit that's aimed at combating that negative savings rate."
At Central CU of Illinois, Bellwood, CFO Bob Satinover said the credit union has targeted longer-term deposits via an called "C3," which stands for Checking, Cash and Credit product. "We rolled it out in the last quarter of 2005 just to attract 16- to 25-year-olds. We didn't do it to be big profitable accounts, but to lay out the future of our relationship to those members for the long-term."
At year-end, Central had opened 56 new checking accounts with balances under $10,000 on a product that offers overdraft protection, has no minimum balance, and features low fees. It also attracted 28 Visa cards that had average balances between $7,000 and $8,000. "We want to help people to manage an account and their money better," he said.
In Baltimore, rate was an effective driver for Municipal Employees CU, which brought in $56 million with a seven-month, 7% APY CD last October to celebrate its 70th anniversary, said CFO Adrian Johnson. The $793-million CU has 85,000 members. "Most of that money, some 90%, was new," said Johnson.
Johnson said that MECU's membership skews older, and they're not as comfortable using web-based institutions. Still, the credit union's 7% certificate can be opened through the CU's website, so members aren't completely uncomfortable.
Why Your CU Should Have A CDO To Focus On Growing Member Deposits
When it comes to savings, Marketing Manager Roy MacKinnon of First Entertainment CU, Hollywood, Calif., says, "Everyone in CU-land knows people don't save. We're a country of debtors." That's why he also has the title of Chief Deposit Officer at FECU. "A few years back, I was given the responsibility of increasing the savings at the CU, and I had to meet a goal of increased deposits."
How has that new title worked out? "We want to grow deposits by 6%, and that's in a very unpredictable economic environment." He said a just-launched CD promotion with a 5.35% APY is very successful so far, bringing in $329,000 through 15 new money accounts and nine rollovers ($134,000) in just a few days. "And the direct mail letter hasn't hit yet," he said.
A big part of the marketing communications at First Entertainment is in-plain-sight financial education with the member newsletter, a glossy publication called "Show," which recently featured a simple explanation for laddering CDs and the benefits the strategy offers. "Plain-speak works," MacKinnon said. "I realized that we never explained laddering, and the Average Joe doesn't understand it. Sometimes, because we're all in this credit union looking out, we can tend to forget that. We need to let people know what we know so they can make better decisions for themselves."
MacKinnon also said that despite FECU's $90,000 average household income (compared to its peer group's $70,000) he knows that many members just don't have $1,000 in extra money lying around. "Many live paycheck to paycheck." But he also knows some members have money on deposit elsewhere, and he wants it.
'MyFunds' Gets Members Started On Savings Early At Northeast CU
Northeast CU, Portsmouth, N.H., recently introduced "MyFunds," an innovative savings account that rewards early savers from birth to age 22 with an 5.13% APY on the first $500. The account includes benefits such as no monthly maintenance fees, account openings with as little as $5, and automatic deposits or electronic transfers from a parent or guardian's NECU account. For students away at college, an ATM or debit card for their MyFunds account is available. Bridging that generational divide, parents and kids can manage their account online.
Perhaps the most direct appeal to get members to save has come from the Columbus, Ind.-based, Centra Credit Union, (CU Journal, Feb. 6), which has rolled out a "Super Savings" product that is based on research from Harvard University and the Filene Research Institute's i3 group. Essentially, it allows members to earn prizes for money saved. There are 10 different monthly prizes, the biggest of which is worth $1,000, and a quarterly drawing that doubles the winner's savings balance up to $1,000. There's also an annual prize of $5,000. For every $25 in average balance a member gets another shot at a prize.
Nan Morrow, Centra's VP of corporate development, said that the program just opened in all 20 CCU branches in January after being test-piloted in two branches in October and already over 1,000 accounts had opened. "We're adding about 150 a week, and while the balances aren't huge, it's building," she said. "Our target is really those people who need a little boost in order to start saving money. It appears to hit a younger age group, 30-40 than an older one."
Those prizes can be enticing carrots, apparently, starting with $100 grocery gift cards all the way up to Global Positioning Systems and laptop computers. The annual drawing will be a luxury trip.
