Encouraging members to save more of their money is more than just good for the member-it's good for the credit union.
A new analysis from the Filene Research Institute shows that by increasing savings per member, credit unions can reduce their operating cost per asset ratios. The ratio declines steadily from 5.12% for savings per member under $2,500, to 1.23% for savings per member over $15,000, according to the new Filene report, "Building Savings-Per-Member at Credit Unions." The study found credit union penetration of the high savings balance households pales with that of banks.
Authored by Drs. Jinkook Lee and William Kelly, the study evaluated strategies for attracting additional funds from households with more than $25,000 in liquid assets, including deposits in credit union and bank accounts and money market mutual funds (MMMF). The researchers divided these households into two groups: High Savers, with $25,000 to $50,000 in liquid assets; and Top Savers, with more than $50,000. They analyzed the institutional use and financial and demographic characteristics of these groups and developed marketing implications for credit unions. Data was gathered from the Survey of Consumer Finances, sponsored by the Federal Reserve System.
According to the Filene study, High-Saver and Top-Saver households differ from Regular Savers, those with under $25,000 in liquid assets. Among households with funds in credit unions, High Savers have five times the average balances of Regular Savers, and Top Savers have five times the average balances of High Savers. Average balances for Regular, High and Top Savers at credit unions are about $3,200, $16,000, and $82,000, respectively.
Institutional use varies among Regular, High, and Top Saver households. The percentage of households that have funds in a credit union is highest for Regular Savers at 26%, somewhat lower for High Savers (22%), and much lower for Top Savers (12%). In contrast, banks have 96% penetration in both the High Savers and Top Savers groups; MMMF's have 23% penetration among High Savers and 41% among Top Savers. Credit unions have the lowest average balances, compared to banks and MMMF's, for Regular, High and Top Saver households.
According to the authors, credit unions have substantial room for improvement in attracting funds from households with more than $25,000 in liquid assets.
Although averages for income, net financial wealth, and net worth are high for both High Saver and Top Saver households, they are far from homogeneous in their financial characteristics.
For example, 20% of Top Saver households have incomes under $44,000. An additional 20% of Top Saver households have income between $44,000 and $77,000, which places them within the middle of the household spectrum.
Modest and moderate income households in the Top Saver group are often senior citizens. "Building Savings-Per-Member at Credit Unions" provides detailed demographic information on the Top Saver group and suggests marketing strategies focused on seniors to attract more funds from the group and serve them more effectively.
"The study suggests that some marketing strategies for Top Savers are also effective for High Savers," says Bob Hoel Filene Executive Director. "Most important, strategies for High Savers and Top Savers should go well beyond using pricing exclusively, and need to be localized for each credit union."
The report suggests approaches for developing such strategies.
