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OpSS Council Generating deposits through checking
WILLIAMSBURG, Va. (9/19/08)--Credit unions need to focus on using checking accounts effectively as a springboard for additional product sales, an industry expert said at a conference this week. A session on how credit unions can generate deposits was presented at the CUNA Operations, Sales & Service Council (OpSS) Thursday in Williamsburg, Va. The conference runs through Sunday. Tim Spenny, strategic advisor at Raddon Financial Group, Oak Brook, Ill., gave a presentation titled “Generating Deposits: New Tactics for Success.” Dollar volume in checking deposits has declined from 2006 through 2008, while in the same period, savings/money market account dollar volume has grown at a 5.1% annual rate, and certificates of deposit dollar volume has grown at a 3.5% annual rate, Spenny indicated. From December 2006 to December 2007, the annual growth rate for U.S. credit union deposits was 8%, compared with 5.1% for banks. The growth rate for loans in the same period was 7.5% for credit unions, compared with 6.5% for banks. Higher expense has caused 43% of people surveyed to save less, while 45 % said higher expense has had no impact on savings, according to the Raddon Financial Group Semiannual Survey. Many financial institutions use promotional gifts to encourage people to open accounts, Spenny said. According to the Raddon survey:
* 39% of those surveyed said the promotional gift made no difference; * 38% said it was a big influence; and * 23% said it played a small role.
Spenny gave examples of what financial institutions do to encourage deposits. Washington Mutual pays a best rate for an online savings account when a checking account is opened. CitiBank offers a high interest-rate account that can be opened only online. It is linked to a checking account. To get the best rate, a customer must pay at least two bills online each month. The development of a checking menu requires eliminating many of the benefits often associated with free checking, Spenny said, such as: free checks, interest, surcharge rebates, debit rewards and foreign ATM waivers. An example of a checking menu is:
* Free checking: No minimums or fees. No fee waivers or other benefits; * Interest checking: Pays nominal interest for a minimum balance; * High-interest checking: Pay the best rate for a high minimum balance (e.g., $25,000); * Relationship checking: Offers benefits based on a full member relationship; and * Green checking: Pays interest, rebates ATM surcharges, and forgives one non-sufficient funds fee for debit card usage, online banking and e-statement.
Build-to-order checking allows customers to, for example, build an account selecting two premium features from a menu of items. When asked to assess their interest in the “build your own checking concept,” 17% of survey respondents said they were extremely interested; 29% said they were very interested, 34 % were somewhat interested; 11% were not very interested; and 9% were not at all interested. Sixty percent said they would not pay for additional features. Spenny listed the following checking conclusions:
* Checking continues to be the main focal point for growth; * Financial institutions are not using checking effectively as a springboard for additional product sales; * With checking strategy one account type is not enough, but don’t go overboard; * Premiums are being offered--cash is king; make sure the premium rewards account activity; and * The newest development is “build your own account.”
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