CD-style deposits skyrocketed last year at the nation's credit unions - a sign of the industry's aggressive attempt to keep and build its membership.
Yearend deposits in share certificates - the credit union version of certificates of deposit - totaled $57.8 billion, according to the National Credit Union Administration. That's 54.8% more than at yearend 1994 and constitutes more than a fifth of all credit union deposits. "If you increase rates, they will come," said Joseph W. Veneziani, chief executive of Group Health Credit Union, a $140 million-asset Seattle association. Group Health was sixth in the nation last year in terms of percentage increase in the product - 444%, to $24.7 million.
Mr. Veneziani said his institution focused its efforts more in this area - in part by lowering the minimum deposit threshold from $5,000 to $1,000 - primarily to provide an alternative to the growing appeal of mutual fund companies, which routinely tout rates of return on equity funds several times higher than that of credit unions.
Though they can't compete with those companies, credit unions can offer attractive rates, up to around 7% on one-year certificates, and stress that they're federally insured, unlike the mutual fund companies, Mr. Veneziani said. The 7% rate easily tops the roughly 5% yield offered by money-market mutual funds.
Savings as a whole at Group Health did not increase much last year, but the certificates likely prevented a deposit drain, Mr. Veneziani said. .
Most credit unions have been offering the certificates for some time but have attempted to expand their use in recent years, particularly last year, to protect their turf against incursions not only from outside the industry but from inside as well.
Members of many credit unions are eligible for membership in other associations, so credit unions have to match or beat the rates of neighboring institutions, credit union chiefs said.
"We make money by making loans. Our members were looking for a higher return, so we priced our certificates to attract new money and keep what we had," said Joseph E. Dwyer, vice president in charge of business development at Beacon Federal Credit Union in Syracuse, N.Y. " We gave them what they wanted."
The $110 million-asset credit union's dollar value of share certificates jumped by 451% last year, to $28.8 million - fifth in the country last year in terms of percentage increase. The association is offering one-year certificates at 5.5%, about 20 basis points above the market right now, Mr. Dwyer said.
This sort of rate is required to fund the credit union's high loan demand, he said. Its loan-to-share ratio is hovering at 95%, well above the industry average of 71% for 1995.
Kennedy Space Center Federal Credit Union in Merritt Island, Fla., stepped up its marketing of its certificates through two new initiatives - direct mail and newspaper ads.
It was also able to expand its traditional membership of National Aeronautics and Space Administration and Cape Canaveral employees and contractors to include any individual residing in Brevard or Volusia counties over the age of 50. Certificates increased by 1,334% last year at the association.
Deposits, or shares, as a whole increased by 6.01% industrywide last year, almost twice the pace of the previous year, according to Callahan & Associates, the Washington credit union consulting firm that compiled the numbers. The rate of share growth had been declining from at least as early as 1992, when it stood at 11.7%, the firm's report said.
On the lending side, auto loans contributed to 58% of all new loans last year, according to the report. The auto loans account for 40% of all loans in the industry, up from 35% two years ago.