FNB Corp. in Hermitage, Pa., is offering a certificate of deposit designed to help customers offset the soaring cost of college tuition.
The average annual tuition at Pennsylvania’s private universities is approaching $22,000. The CD, which the $5.8 billion-asset FNB started offering last month, lets customers accumulate “points,” which can be redeemed later as credit toward tuition at one of the hundreds of private colleges across the country participating in a program run by Sage Scholars Inc. of Philadelphia.
Every year participants get credits worth 5% the total balance of the accounts — $500 on a $10,000 CD, for example. FNB customers also can earn tuition rewards on individual retirement accounts.
The parent of First National Bank of Pennsylvania is the third banking company to sign up for Sage Scholars’ tuition rewards program, and James Johnston, Sage’s founder and chief executive, said he is looking for more.
“We tell banks we like them to think outside the toaster,” Mr. Johnston said. “All the bankers remember giving away toasters for opening a new account. We think this is something much more valuable they can give customers.”
He said Sage’s goal is to make a private college education more affordable.
Neither students nor colleges have to pay a fee to participate, but Sage charges financial institutions a fee of 10 basis points or less for assets that are meant to accumulate tuition rewards. FNB said it considers the fee reasonable for a product that can benefit existing customers and, it hopes, will attract new ones.
Participating colleges provide a discount of up to 25% of whatever they charge for each academic year. Mr. Johnston said that so far 192 colleges in 33 states have signed up, including 20 colleges that have come on board in the past six months.
In addition to the three Pennsylvania community banks, life insurance companies, mutual funds, and brokerages reward customers with tuition credits. Asked why so few banks have signed up, Mr. Johnston said Sage has concentrated its marketing mainly on mutual funds, but it plans to go after more banks soon.
Christyn Divine, senior vice president and director of marketing at FNB, said it heard about the Sage program from a customer, Thiel College in Greenville, Pa.
Thiel and 20 other colleges in FNB’s area participate in the program, “so we saw a natural tie-in with hometown community banking and the local colleges,” Ms. Divine said.
Lance Masters, Thiel’s president and CEO, was the first person to open a Tuition Rewards CD at FNB, and he said that eventually he will use the credit he accumulates to help his grandchildren pay for college.
The CD yields 4.75% annually, but with the tuition rewards, “I get what amounts to double the interest,” Mr. Masters said. “I think that’s a pretty good deal.”
To reach grandparents, the bank also has publicized the program in a newsletter it produces for its 12,000-member club for adults over the age of 50.
Ms. Devine said she sees more marketing potential for the program in the future, possibly in targeting wealth management and business customers. Though she does not know how many people have signed up so far, “we’ve had a substantial amount of interest, and we’ve generated deposits from it.”
The benefit is less immediately tangible than, say, a toaster, she said. “It’s a little bit harder for customers to grasp, considering that they can’t touch it or feel it.”
However, the bank’s Web site lets participating customers check how many points they have, she said. “They can add up, just like airline miles.”
The $770 million-asset Harleysville Savings Bank began offering the program two years ago and uses a brochure to promote it. Now more than 500 customers of the Harleysville Savings Financial Corp. unit participate.
“We also mention the program in conversations with our customers,” said Ron Geib, the savings bank’s president. “We talk about it as an additional value the bank can provide with their savings or checking account.”
The bank offers tuition rewards on all deposit accounts — checking, savings, and CDs. Those who sign up for the program receive the same interest rate as everyone else.
Next fall will be the first time a student will be using tuition rewards from Harleysville Savings to help pay for college, and Mr. Geib said he expects word-of-mouth to start generating more interest soon.
“I believe it will catch more momentum once a few customers redeem the rewards and start saying to their friends, ‘Hey, I got $1,000 deduction on my tuition bill,’ ” he said. “Until those tangible benefits are out there, word of mouth won’t really get going.”
Mr. Geib said he is not sure if the program prompted customers to transfer money to the bank or how many new customers it might have attracted. However, he said the program helps differentiate Harleysville in an industry with commoditized products, and it gives customers reason to stay with the bank.
“We hope it creates some ‘stickiness,’ ” he said. “Any incentive we can give the customer in dealing with us, we look for those opportunities, and we feel this is one of them.”
The tuition rewards must be designated for a particular student when he or she is a high school junior. Then colleges participating in the program can begin marketing to the student.
“The parent must be wiling to allow their student’s name to be shared with the colleges,” Mr. Geib said. “That way, the colleges are aware that this student has the tuition benefits and can put their name in front of the student.”
According to Mr. Johnston, more than 85,500 people in 50 states are earning rewards through the program, and so far they have accumulated $3.4 billion to put toward a college education. Participating students will save $702,000 on their tuition this school year, he said.
