Study Suggests Members Open To Uninsured Accounts

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Would credit union members be willing to invest in uninsured savings accounts if a higher rate of return was offered?

Yes, according to a new Filene Resarch Institute study that examined the attitudes of 240 credit union members on uninsured accounts.

To collect data for the study, Jinkook Lee of the Ohio State University and William A. Kelly Jr. of the University of Wisconsin-Madison interviewed 240 members of a credit union in the southeast, then asked each interviewee to fill out a questionnaire. The members in the sample represent a wide mix of demographic characteristics-age, ethnicity, gender, education, income, and wealth. They also represented a wide range of other characteristics, such as knowledge of federal deposit insurance, knowledge of savings and investment products, attitude toward risk, and openness to new financial products.

Members Asked About CD

The study, entitled "Uninsured Accounts: An Assessment of Member Interest," was based on providing members in the sample information about a prospective new uninsured CD product. Four groups of 60 members each received varying information about the product. The control group received only a description of the product. A second group received comparable interest rate information in dollar amounts. A third group received information on the rate of credit union failures that would have caused a loss on uninsured shares. And the fourth group received information on both returns and risk.

The additional information proved critical to member responses. In the control group, only 13% indicated they likely would use the uninsured product. That figure jumped to 40% and 47% for the second and third groups respectively, and to 87% for the fourth group, the authors reported.

The study found that members responded even more positively when given a choice of what proportion of funds they would allocate to insured and uninsured accounts. When given the choice of allocating $10,000 between insured and uninsured accounts, even among members of the control group, 63% would allocate at least $1,000 to the uninsured account. In groups two and three, 87% and 93%, respectively, would allocate at least $1,000 to the uninsured account. For both of these groups the median allocation to the uninsured account was $5,000. In group four the median allocation to the uninsured account rose to $7,500.

'Right Information In The Right Way'

"The results of this study suggest that if presented with the right information in the right way, a substantial portion of members would be open to using an uninsured account," says Bob Hoel, Filene executive director. "That's especially true when the product is offered in combination with an insured account. However, a number of questions remain to be answered before concluding that credit unions should offer such a product."

"There are also legislative and regulatory hurdles that need to be addressed," Hoel adds. "Currently, most credit unions that are not designated as low income have very severe capital-raising restrictions. This study should be very helpful to public policy makers when reviewing the appropriateness of new alternatives for building credit union capital and improving safety and soundness."

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