DAYTON, Ohio -
Financial trade publications and national news media outlets are full of stories on the negative savings rate of Americans. The $150-million Day Air CU has responded with its Auto Loan Plus program that has a built-in savings function that is designed to store cash for unforeseen mechanical breakdowns or to save for a deposit on a new car. Day Air SVP of Member Services Melissa Johnson said Auto Loan Plus is a simple, straightforward plan to help the members.
"There is a need to teach saving. The only savings product that seems to be working are 401ks," Johnson said. "Out of sight, out of mind, is working."
Johnson said the idea of combining savings with an auto loan was created by the Filene I3 Group and presented at a CUES meeting. Day Air liked the idea and advertised Auto Loan Plus in the credit union newsletter, e-statements, mail statements, staff word-of-mouth and a local newspaper also ran a small story on the subject.
"Credit unions wonder if people read their newsletter. We've been surprised at how many people have said they read it in the newsletter," she said.
Launched July 1, 39 of the Auto Loan Plus accounts were opened in the first four weeks, Johnson said, representing 17% of the direct auto loan portfolio.
Johnson said 27 of the loans were new accounts and 12 were savings plans added to existing accounts, an event the credit union didn't foresee.
After all, who would think a member would come in wanting to make an existing car loan payment bigger?
"That usually doesn't happen," she observed. "It's actually going over very well. They know they need to save. They just don't do it."
Johnson said the Auto Loan Plus program is an interest-bearing account built around a five-year certificate of deposit. Members who feel the need for early withdrawal have to pay a $50 fine and 180 days of interest unless the cash goes toward auto repairs.
There is no fee to enter the Auto Loan Plus agreement, which covers 110% of a car loan and includes the cost of a present car payment, tax, tag and title, plus the added money tacked on for a future down payment on another vehicle.
In addition to the noted impact of the Day Air newsletter and the surprise increase in payments on existing auto loans, Johnson said credit union staff have begun to ask her if they can use the special savings function for their own auto loans. Johnson said Day Air is very pleased with its quick success and has no plans to make any changes to the Auto Loan Plus program.
"It truly is for financial education and to encourage people to save," she said.
