Grow Core Deposits by Fixing Sales Conversations
If you are like most of the credit unions I am currently working with, the competition to grow and retain deposits is a real challenge. The deposit war began last year and is still raging. And it doesn’t look like it will settle down for many months.
Out of necessity, credit unions are offering high-rate certificates to attract new deposits from existing and new members as well as retain deposits their members currently have with the credit union. But this “race-to-the-top” approach has put significant strains on loan margins, pushing loan rates up and profit margins down.
Most certificate rates reached a peak in March of this year, and we have seen very little movement above 4% to 5% since then. Although rates will inevitably continue to climb in the short term, the battle over money your members want to invest in certificates will likely stay stagnant. This means, if new certificate money comes in, it will only be because the member is rate shopping. Most certificate money right now is transitory.
Based on a survey of 200 credit unions with assets exceeding $500 million, only about 21% of credit union deposits sit in certificates and 4% in IRAs and KEOGHs. This leaves nearly 75% of all deposits being held in regular shares, money market shares, and checking accounts. Here are the percentages:
• Checking Accounts: 23%
• Regular Shares: 29%
• Money Market: 23%
• Share Certificates: 21%
• IRA Shares: 4%
Why is this significant? It emphasizes two points. First, most deposits held in non-investment type accounts are still being held in completely liquid accounts, nearly 75%. Those funds can be won and moved immediately when the member sees value in moving those funds. And second, most of these funds are sitting in low-interest bearing accounts meaning they are not being rate-shopped.
Members don’t actively seek the “best rate” when it comes to regular shares, checking accounts, or even money market shares. Once the relationship is established, those funds simply accumulate. The funds are there because the credit union has won that relationship over time. In many situations, this relationship is driven by the checking account which most credit union professionals will admit, is the hardest to earn.
There is no quick fix to growing deposits outside of high-rate, flashy promotional offers. Those offers may bring in the dollars and pad the deposits column, but they water down liquidity and erode loan margins. This is generally not a good approach to long-term, sustainable growth, or even growth in the short term.
In the short term, credit unions should actively promote checking and deposit growth. This must be done with high intention, and that means a lot more than simply raising rates to lure members and non-members into moving funds. Most credit unions are already doing that. It means that conversations with members need to change to seek additional information from members about their savings accounts with other financial institutions a...