Long before personal financial management websites like
The themed accounts are designed to appeal to people who want tools to tackle money flow hiccups - either through a small loan or special savings account - and come with seasonal names like "Holiday Club" or "
"It's one of the most simple types of financial products that matches a real need," said George Hofheimer, chief research and innovation officer at Filene Research Institute. "There are cash flow issues this time of year."
Many Americans lack an emergency financial fund, let alone a reservoir for buying presents, traveling home or adding roast beef to the menu. Extra expenses can add stress. In fact, 43% of Americans say they wish they could skip the holiday season because of the financial services strain tied to it, according to a recent survey conducted by Harris Interactive and sponsored by Think Finance, which sells installment loans.
Small holiday loans, which are mostly issued by credit unions, usually more favorable terms than credit cards. Often issued as signature loans, their APRs typically range from about 5% to 12% with 12 months to pay them off, said Hofheimer.
Holiday club accounts, the lexicon for CD-esque savings accounts, generally let members set up automated monthly deposits year round, earn a small amount of interest, and can only get depleted at a certain time, typically in October. Simply put: they automate discipline.
The products aren't money makers, but they come with a strong fan base and can generate cross-sale moments.
Legacy Products Members Want
"They are legacy products that members really want," said Eugene (Gene) Foley, president and chief executive of $435 million-asset Harvard University Employees Credit Union, which offers club accounts and holiday loans. "It's an easy way to budget.... We would get a black eye for taking either one away. "
Other credit union executives say the same.
Veridian Federal Credit Union, which has offered holiday loans since 1991, reports that some members ask for the loan before it's promoted. Terms are up to 12 months and the rate can be as low as 6.25%. The credit union originates about 750 loans per year.
The $2.4 billion Waterloo, Iowa-based Veridian also counts just over 3,000 holiday club savings accounts, which also appeal to certain bank customers.
Despite consumer interest, small dollar loans are hard to make profits on, while goal-oriented savings accounts tend to garner low balances that disappear once a person funds his vision. In other words, they aren't bankers' paradise, which is evident when the clubs offer less interest than other savings products that the financial institution offers.
"We don't make anything," said Foley. "It's a total member convenience thing."
In fact, the Cambridge. Mass.-based credit union lost revenue on the holiday products prior to tech enhancements. "Doing everything electronic helps the [products] break even," Foley said. "Thank God we can be digital now."
The credit union now lets people self-enroll for the holiday products on its website and has saved on paper costs that come with opening accounts at branches. The online loan app, for example, runs loan decisioning software to determine preapprovals and automates the disbursement of funds.
Likewise, the club account recommends members fund the accounts when contributions are made via payroll deductions.
The products can, however, offer financial service providers salient data.
The Perk Of Leads
Forum Credit Union for one, has noticed a perk gained from certain holiday applicants: leads. "In discussing with members, we might find other opportunities," said Kristi Lowell, vice president brand strategy and development at the $939 million institution in Fishers, Ind.
Member interest in Forum's holiday savings club, meanwhile, is encouraging the credit union to explore broadening the concept to "saving for a purpose," where members could set the parameters, said Lowell.
Of the goals set through SmartyPig, roughly 7% are set for shopping/holiday gifts, which puts it in the top 10 categories, said Jon Gaskell, a co-founder of the company. SmartyPig also sells services to banks under another brand.
The need for digital money management tools is driven by a debt-heavier lifestyle than yesteryear. "My grandparents were great savers," Gaskell said. "It's really the way it was. ...You don't come back from World War II and see a Citi credit card statement in the mail. People need to understand where every penny is going and tech is there to help them."
Jacob Jegher, a senior analyst at Celent, views the SmartyPig technology as offering better utility for consumers because of the merchant discount gains. He broadly sees opportunities for banks if and when they better connect their services to shopping. USAA, for example, already lets members get discounts from certain merchants.
But for some credit union members, financial planning just means checking their account balance.
Harvard University Employees' Foley noted that a slick program is unlikely to influence the behavior of those "who go to the ATM and pull out the receipt to see the balance."
