22
Jun
2006
High Yielding Savings Accounts
A must read about high yielding online saving accounts…
So are credit unions ready to go? Can we open accounts, completely, online with no human interaction? Can we afford to pay for these high-yielding, online only accounts?
Robbie, There’s no doubt in my mind that CUs must respond to the high-yield online-only accounts by offering similar products. Sunmark FCU is the only CU offering such right now to my knowledge. Ah, but the offline banks are catching on, too – Citi’s launched an eSavings account, for example.
I’ve heard a lot of “We can’t afford to do that! What will happen to our regular share deposits?!”
Members choosing the INGs and HSBCs are young, educated, and profitable. I just don’t buy the argument that credit unions shouldn’t worry about reaching out to the “fringe” members who are using these accounts. This study is further proof of that: “These members are already using more services than the frequent branch user segment, which may justify further investments in services or higher yield accounts to maintain their loyalty.”
I don’t step foot in a branch if I don’t have to, and I choose a 4%+ APY from my online bank over my CU’s <1% APY without thinking twice. Why should I when I can make an online transfer much easier than running an errand to a branch?
And if ING Direct goes through and begins offering a paperless checking account (rumored to come in above 3% – with NO fees), look out! You’ll see quite a few people making online-only ING Direct their PFI.
I know many CU’s are shying away from such a product because they’ll have 65 year old members coming in wanting to get 4.75% on their prime share.
The theory goes if they don’t come into a branch, one can afford to pay a higher rate. But where do you draw the line between online and branch access? If you don’t draw a line, members will just move their money and drastically increase the CU’s cost of funds. I don’t think to many CU’s would actually “draw the line” because they don’t like saying no to their members.
Last week I heard Doug Fecher, Wright-Patt’s CEO, speaking about a payday lending program that his credit union offers. When countering arguments about why they shouldn’t offer the program, he said something to the effect of, “You can always find a reason not to do something. We looked for reasons to do it anyway.”
I hear the “what if” argument a lot in credit union land, particularly when CUs throw the idea of blogging around. “What if someone says something negative about us? What if we say something wrong and get sued?” No one ever says, “What if this is a huge success?!” IMHO, that’s the “what if” that fuels growth.
For that hypothetical 65 year old member wanting 4.75% on share savings, staff must be educated enough on the program to explain why the rate’s so high (no branch access allowed, electronic transfers only). When the older member standing in the branch hears about the online-only restriction, he/she’ll probably say, “I wouldn’t want that!”
Or just maybe she’ll say, “I want that! I pay some of my bills online already.”
There’s an art to saying “no.” It doesn’t have to be a stone-cold “no”. It could be said, “We can’t offer that on your share savings. There’s a good reason why: (fill in blank here about the cost of an online vs. a paper/in-branch transaction). Ms. Member, we offer training on our online account every month. It’s easy to set up and to use – we can get you started right now.”
To me, there’s a clear line between online only and branch access, but if a member doesn’t understand that and wanders into a branch, charge a fee that’s high enough to discourage abuse of allowing the access. Or stick to your guns and say “no”.
Good points, Robbie!
“What if” is an essential question to ask in business, not a sign of weakness. If the cost of a savings account exceeds the amount that account generates then the credit union is operating that account at a loss and is therefore using its members’ money inappropriately.
An account can be operated at a loss if it’s part of an effort to encourage a longer-term relationship with the credit union (unprofitable youth savings accounts come to mind) but there should be an expectation of future profit. By the way, the word “profit” doesn’t have to be a negative word in CU land — the members who put their money in a credit union are rightfully expecting a “profit” (it’s just called a “yield”).
Sunmark answered this particular “what if” by separating their online-only product into a separate brand, thus eliminating the expectation of branch access. I doubt they would like the negative word-of-mouth they would receive from the member who got a “no, you can’t use this branch.”
Yes, credit unions should be innovative and look for ways to offer new products to their members. But it’s also ok to ask the “what if”s. The members are counting on them to use their money wisely.
I think there may be another way than the “e” only high yield savings account -> like Citi’s eSavings – that lets credit unions offer an attractive product with very clear rules (not an e-Only access restriction – which might be harder for non-e members to understand/accept).
So require an active Checking account – your “dividend checking” even (with its minimum balance requirements, etc.)… Maybe it becomes an added advantage to moving to your “dividend checking” account – that you have access to this high yeild savings account that “just anyone” can’t get…
I think there is a way -> just not sure that “online only” is the model.
I think there may be another way than the “e” only high yield savings account -> like Citi’s eSavings – that lets credit unions offer an attractive product with very clear rules (not an e-Only access restriction – which might be harder for non-e members to understand/accept).
So require an active Checking account – your “dividend checking” even (with its minimum balance requirements, etc.)… Maybe it becomes an added advantage to moving to your “dividend checking” account – that you have access to this high yeild savings account that “just anyone” can’t get…
I think there is a way -> just not sure that “online only” is the model.
Robbie, I just discovered your blog and hope you keep at it. I have recently been studying the credit union movement, and am eager for dialogue on the topic.
Too many credit union leaders have forgotten that the “Share Savings” account historically WAS the vehicle for returning excess earnings to their members. Through most of the late 1980s and 1990s, Share Savings account rates were higher than similar products offered by banks. When banks were paying 2.25% interest on savings accounts in the early ’90s, CUs were paying 3.5% to 4.0% dividends.
Quite aside from the idea of offering a branchless Online-Only High-Yield Share Savings product, I think most CUs need to look squarely at what GMAC Bank, ING Direct, HSBC Bank, Citibank and other online offerings are doing: there is NO MINIMUM BALANCE needed to obtain a HIGH YIELD. Today, most CUs are paying a chintzy 0.5% to 1.0% dividend rate on share savings, then offering “money market” accounts requiring a $2500 to $10,000 minimum that only pay 2.5% or maybe 3.0% at best.
Why can’t a healthy CU pay a Share Savings dividend to their member-owners of at least 2.5% or (hold your breath!) 3.0%?? I’m not advocating they do this if they are bleeding red ink, but the ones I’m speaking of are generating very healthy “surpluses” for a nonprofit.