Is Discover more thrift oriented than credit unions?

So credit unions are supposed to help their members be thrifty and spend their money wisely.  That is such an important topic that companies like Jwaala have built software solutions to help CU’s achieve that goal and the Partnership Symposium has invited a guest speaker for that topic.  So tell me why I see things like this:

Shouldn’t we be seeing stuff like this from credit unions?  This is a major differentiator for credit unions and it seems that we are letting banks play the thrift and savings card better than we are.  We’ve got to step up and help our members before the banks lure them in with tools like this.  And then charge them 36% interest on their credit cards.

WalMart in the news about offering financial services

WalMart LogoThe Financial Times published an article today, “Wal-mart to open 1,000 Money Centers“, providing some details into the major retail chains entry into the financial services market.  Although WalMart dropped their ILC plans in March 2007, they’ve decided to utilize pre-paid money cards to get into their customers wallets.  WalMart will bring a new level of competition to the marketplace for the under-served.  Their in-store “branches’ will be open 7am to 9pm 7 days a week.  Show me a CU or a bank that has those hours…  In addition, they plan to partner with other large financial service companies to distribute their products to the WalMart consumer.

“Instead, it is working to expand its products with financial partners, including GE Money, which is issuing the pre-paid card, and ShareBuilder, which is testing online new share and money market savings accounts that can be linked to the prepaid card.”

Whether good or bad, WalMart will be here for a quite a while and their MoneyCenters may cause some major changes in the financial industry.

What’s an IDA?

I asked the same question the first time I saw IDA.  Did someone misspell IRA???

 An IDA is an Individual Development Account and it is an initiative the state of Oregon kick off a few years ago through The Neighborhood Partnership Fund.  The fund lists three main goals:

      1. Oregon’s communities will thrive while meeting the housing needs of all residents.
      2. Low income Oregonians will have increased opportunities to succeed in school and life. Success will be maximized by an infrastructure of interwoven housing and services provided by a vibrant network of community development organizations.
      3. Low-income Oregonians will increase their household financial resources and stability. NPF will work with partners to build individual, family, and community social and financial assets. 

The primary goal behind the IDA is to help low income individuals and families start a business, education or skills training, or to purchase their first home.  The savings in the IDA are matched at a rate of 2:1 or 3:1!  How is this possible you say? 

The state of Oregon has initiated a tax credit for donations to the NPF at the rate of 75%!  Plunk down a thousand dollar donation to the NPF, and you’ll get to write off $750 from your Oregon state taxes!  (Footnote: I’m not a tax professional, don’t listen to me.  I’m just reading their site.)  These donations then fund the savings matching. 

How does this apply to credit unions you say?  Well besides helping low income families, and besides helping our membership save, and besides helping our more affluent members get a tax break,

"Once eligible low-income participants have met program criteria, they open their IDA at a local bank or credit union. They work with program staff from a qualified social service organization to set up a savings schedule and ultimate savings goal."

Sounds like a perfect fit for credit unions.   

About the IDA (the NPF site)

Epiphanies and IRA’s

A few months back while we were planning out our deposit strategy for 2007 and 2008, I just rattled an idea out of my head. No clue where it came from, but I just blurted it out.

Why does our IRA rate suck? (That wasn’t my idea, just my observation.)

The average life of one of our IRA’s is almost in the double digits! So why do we pay low rates on that money? If the average life of an IRA is almost 10 years, what rate would be put on a 10 year CD??

So we’ve developed my IRA idea into our Premier IRA: The Last IRA You’ll Need.

Internally, it will always be priced around our 5 year CD. We launched the product last month, but we haven’t start the promo machine until this month. Our current rate is 4.5% APY with no account minimums.

We’re running with the “Last IRA You’ll Need” because we’re targeting the large number of people who have small IRA’s spread out across a few institutions and want to help our members consolidate their IRA’s and not have to ladder CD’s and manage maturity dates. This way, they have one big account that is easier to manage and their funds are fully liquid! Plus, the NCUA insures it up to $250K now! And at 4.5% we’re way ahead of of our regional IRA savings market and we’re in market for 5 year CD’s.

We’re looking for ways to grow shares rather than promo CD’s and checking, checking, checking. We’ll see how it pans out.

Money Merge Account/One Account

I stumbled upon the article in Wikipedia today about Money Merge Accounts.

While I completely agree that paying for a software program to “manage” this appalling, consumers searching for info on how they can do this for themselves will find the Wikipedia article and not useful information about how this can be accomplished.

I love the idea of this account. In fact my wife and I will be doing it here shortly at my CU to start testing, but we need to educate our members and the general public how this works!

For those of you new to this concept, the basic premise is that you dump your entire mortgage into a line of credit. You also combine all of your checking and savings accounts into this line. So when you get paid, your direct deposit goes directly into your line, immediately lowering your principal balance. As you pay your bills throughout the month, you withdraw money from you line to fulfill those needs.

Over time, you will pay dramatically less interest on your line because your average daily balance of your line is much lower that what it normally would be. Would you rather receive 2% interest on your money market account or “earn” 7% interest having the money in your line instead?

It takes a very fiscally responsible person to do their finances like this. This type of program will only work if you are a net saver.

I encourage anyone looking to do something like this to visit The One Account. If you can get over the whole pounds thing, you can use the calculator and figure out how fast you’ll pay off your house. (My wife and I will do it in 12 years.)

And for those in the CU industry: we need to go change the Wikipedia article to have it actually explain the concept behind The One Account/Money Merge Account and not scare off consumers. Once (if) CU’s can really start adopting this product, we really need to make sure that we can educate the public and our members about the true benefits of this program.