Stick With Deposits

Competitive savings vehicles keep members loyal.

As consumers' confidence in the slock market improves, deposits are leaving credit unions' coffers. The key to surviving liquidity challenges is to have a consistent deposit strategy, credit union executives say.

"Avoid jumping into the market only when you need deposits," advises Jim Kanaley, CEO of $105 million asset Tobyhanna Army Depot Federal Credit Union, Scranton, Pa. "And don't sit back and wait for deposits to flow in. Members need a reason to deposit their money with you, and you need to market that reason."

Kanaley; Stacy Arena, marketing director for $175 million asset Foothill Federal Credit Union, Arcadia, Calif., and Glen Olpin, senior vice president, treasurer, and chief economist for $3 billion asset America First Federal Credit Union, Ogden, Utah, offer their thoughts on securing members' deposits.

Q How challenging is it to attract deposits?

Kanaley: Consumer confidence in the equity markets has been somewhat restored. As a result, members have been moving their funds from risk-free, lowdividend liquid savings to the equity markets seeking better yields. Rising interest rates create a competitive environment. Financial institutions have rushed to lock in short-term certificates with higher returns. Institutions that can afford to be market leaders have attracted members who are rate shoppers.

Try to be a rate leader with at least one deposit product, such as an offterm share certificate. Or be best in market with regular savings and regular-term share certificates.

One issue is the economy. When the unemployment rate is high, as it is in northeastern Pennsylvania, members don't have excess funds to deposit. And members are dealing with high fuel costs.

Arena: Deposit growth has been a little slower this year than in the past. Our credit union focuses on the educational community, so we usually see less activity in the summer because the educators aren't working. In March, we held a certificate promotion and attracted $800,000 in new money.

Olpin: Our deposit growth is seasonal. We usually see the strongest deposit growth from midJanuary through the first of May. In 2001, as the stock market started to decline, we had strong deposit growth. As the market started to rebound in 2003, some money flowed back to the market, and building deposits at the same rates of growth in previous years proved to be a challenge. We didn't do a lot to promote deposit growth. This year, the stock market is rocking up and down, and we've done some promotions to build deposits with a lot of success.

Q What's your deposit strategy?

Kanaley: We've created off-term share certificates. Instead of the traditional 12-, 24-, or 36-month terms, we offered special rates for 15-, 30-, and 66-month share certificates. Some money has come from our savings accounts. We view this positively because we now have those funds locked up and we've created more "sticky" relationships with those members. If rates continue to rise, those special share certificates may prove to be fairly low-cost deposits.

We're also rolling out a money market account. We hope to generate new deposits, but we recognize there will be an additional flow of dollars from lower-cost savings accounts. We expect the money market accounts to stay for a longer term, and we'll again create a more sticky relationship with members.

We're pursuing checking accounts aggressively. Traditionally, we asked members to open checking accounts only after opening the primary share account. Now we automatically open share and checking accounts, debit cards, and so on. We now have nearly 85% checking account penetration when these accounts are opened at the same time as new share accounts.

Arena: We've created unique products to help our educators with their personal finances. One is the summertime savings account with an interest rate of 4%. We also strive to offer competitive rates for our members to help us reach our deposit growth goals.

Q What promotions attract deposits?

Kanaley: Two weeks before the Super Bowl, we created a promotion around the Philadelphia Eagles. Because this was the 39th Super Bowl, we offered a 39-month share certificate with a $3,900 minimum deposit yielding 3.99%. If the Eagles had won the Super Bowl, we'd have enhanced the dividend with an additional 0.39%.

We also created a promotion for March Madness. Similar to the Eagles promotion, there was a special term, rate, and an additional 0.25% bonus yield for every game Syracuse University won during the [National Collegiate Athletic Association] basketball tournament. It was an inexpensive promotion because Syracuse bowed out early in the tournament.

Arena: We're creating a bump certificate promotion for the summer months when deposits are slower. We always try to offer above-average rates on our money market and certificate accounts. We provide value-added benefits on our certificate accounts by offering additional basis points for members with higher loan or deposit balances.

Olpin: We typically run some type of certificate special during the first four or five months of the year. Our certificates are attractive because of their higher rates. Today, members are tired of waiting for higher dividends so they've been more willing to extend into longer-term deposit accounts looking for higher rates.

Q How do you retain members' deposits?

Olpin: Through relationship pricing. We look at the overall account relationships and for opportunities to cross-sell. We also have a bump option on our certificate accounts, which gives members the option to bump up a rate once during the life of a certificate. Distinguishing features such as the bump option add a lot of value to a product at little added cost to the credit union.

Kanaley: We consider it a personal affront when we find out a member is looking to place funds elsewhere. Our member contact staff are very good negotiators and do their best to remind members that we're consistently among the best rate providers in our market. We acknowledge we can't always pay the highest rate, but we talk to members about how we're consistent over the long haul.

Arena: Our goal is to exceed members' expectations while offering quality products and excellent member service. Our packaging of products offers numerous benefits for all members. We've created teacher's advantage and hospital advantage packages to help each group achieve its financial goals.

Q What accounts are most popular?

Olpin: For the past two years, our five-year certificates have been the most requested because of the higher rate they pay. The bump option also is popular.

Our checking accounts pay interest with no fees and haven't only been popular but have solidified member account relationships.

Kanaley: Nearly 70% of our deposits have rested in straight shares. But now that interest rates are on the rise, members prefer the short-term [15 months and less] share certificates. They think rates will continue to rise, and they don't want to lock in for longer terms. If rate increases slow down, members who are still averse to the equity markets might prefer longer-term share certificates [24 months and longer].

Q How does increasing deposits benefit your CU?

Kanaley: One of the founding principles of credit unions was to promote savings. That's still true today.

Increasing members' deposits increases members' wealth and gives them a feeling of security. When members are pleased with the credit union, they tend to be more loyal. They tend not to be rate jumpers. They'll stick with the credit union over time and develop long-term relationships that benefit both the members and the credit union.

Olpin: Deposits fund our loan programs, but it goes back to the overall account relationship. If we have members' checking accounts, they're more likely to stay with us and consider us their primary financial institution. Once that relationship is established, we have the opportunity to cross-sell.

Arena: Increasing our deposits allows us to be a strong financial organization. Without strong deposit growth, we wouldn't be able to be an exceptional lender, which is part of our vision.

See how these CUs encourage members to save at CREDIT UNION magazine.com

Copyright Credit Union National Association, Inc. Jul 2005
Provided by ProQuest Information and Learning Company. All rights Reserved