Are Increased Credit Union Deposits Too Much of a Good Thing?
By Gina Ragusa Credit Unions Online
While it could be compared to the old adage of “being too rich or skinny,” having too many deposits could be considered to be somewhat of a dicey situation for credit unions.
Recent reports that credit union deposits have ballooned well beyond the norm have left some economists to scratch their heads wondering why so many are parking their funds in a credit union deposit account.
In a recent CUNA Mutual Credit Union Trends Report, Chief Economist Dave Colby writes, “Despite almost continuous declines in deposit yields (new record lows), year-over-year savings growth moved up to 6.2%, the highest level since April 2010.”
Additionally, he raises concerns that when financial institutions experience a savings spike, this activity has traditionally marked the start of a recession. Colby reports, “Historically, members increased savings prior to the start of a recession and we hope the recent trend is not a harbinger of yet another economic cycle. Given the extremely low yield environment, we are concerned and will closely monitor near-term trends. This is especially true since regular shares (0.288% national average yield) are up 10.2% year-over year.”
Could the country be headed for another recession or is the increase in deposits simply the continuation of big bank fall out?
Credit Unions Seeing Memberships Rise with Deposits
Instead of feeling as though a recession could be upon us, some credit unions report that the increase in deposits is likely from dissatisfied big bank customers continuing to move their relationships and money.
According to a recent Monthly Credit Union Estimates survey released earlier this month by CUNA, assets have reached a milestone, topping $1 trillion fueled primarily by membership growth.
"Last year new-member growth at credit unions was fueled by consumers' dissatisfaction with high bank fees and the emergence of the Bank Transfer Day phenomenon," says CUNA Chief Economist Bill Hampel. "The influx of new members and deposits in turn powered credit unions' asset growth."
"Going into 2012, it has been gratifying to see strong membership growth continuing," Hampel adds. "Clearly, Bank Transfer Day has a tail to it. Net membership growth at credit unions during the first three months of 2012 is greater than membership growth for the whole of 2010. People are discovering it is easier to join a credit union than they think, and they get a great deal both in terms of pricing and service."
Molly McCurdy, Marketing Coordinator at Star Choice Credit Union ($46 million, Bloomington, MN) believes that her credit union’s deposit jump is due to a combination of new and existing members increasing their credit union relationship.
She says that the recent $2.3 million increase in deposits during the first quarter alone is being generated from members seeking a safe, trustworthy resource for their money.
“We have a lot of members who are taking money out of big banks,” she explains. “I think they feel safer with their money here, at a smaller institution. Members know that they aren’t just an account number here and that we strive to deliver consistent, exceptional member service during every encounter. We also know our 6,000 members by name and people are simply straying away from big banks and turning to a smaller, personalized experience.”
McCurdy says that not only were new members generated from the efforts during the promotion of Bank Transfer Day but through numerous existing member referrals. “We get a lot of new members from our existing members. They tell their friends and family about the kind of service they receive at the credit union, which generates new memberships.”
Shannon Ellis-Brock, Chief Operating Officer at Puget Sound Cooperative Credit Union ($75 million, Bellevue, WA) recently told Credit Unions Online immediately after opening a new branch on scenic Vashon Island, memberships and deposits soared. Following its initial branch opening in March 2011, the Vashon Island location has 2,000 members who hold $20 million in deposits.
Although thrilled with the response, Puget Sounds’ CEO, Kevin Ellisen told The Vashon-Maury Island Beachcomber that the credit union needed to act in order to manage the deposit to loan ratio. “I don’t want to give people the impression that we’re suffering,” he told The Beachcomber. “But too much of a good thing is indeed too much of a good thing. … Give us another year before we can take on more (business) deposits.”
Managing Deposits to Control the Spread
Star Choice’s 7% deposit growth has been a double edge sword for the credit union. Like Puget Sound, Star Choice is taking steps to monitor and manage growth. “Although we are happy to have the deposits, we need to find the balance,” McCurdy explains.
Daniel Christiansen, President of Star Choice decided that in order to shave assets by $1 to $2 million the credit union would suspend paying market or above market interest rates on amounts above $100,000 on its money market account.
“This isn’t going to be forever and will only go on until we can reduce our assets,” McCurdy says. “Plus the action only impacts 20 members, who all have other accounts and a strong relationship with the credit union.”
“We initially mailed a letter to our members explaining what we planned to do and why,” McCurdy recalls. Following the letter, the credit union’s in-house financial advisor, who works through CU Companies, made phone calls to each member in order to offer alternative solutions.
“So far we haven’t had any problems or lost any members as a result,” McCurdy says. “Also, our financial advisor Dave Murdock offers a variety of options ranging from investments to certificates. Plus, members trust and feel comfortable with him because he’s coming from their credit union.”
In addition to deposits, loans have also been booming for Star Choice. “87% of our savings is loaned out now,” McCurdy says. “This percentage is considered to be quite high, considering the national average for credit unions is 57%.”
Unlike Star Choice, Puget Sound is currently on the hunt for loans. Ellis-Brock said, “Our energy efficiency loan is how we were introduced to Vashon. Our current focus is on communicating the benefits of our loan products, especially the energy efficiency loan, which we know so many on the island would appreciate.”
Puget Sound’s CEO plans to possibly suspend business accounts or even write letters to members who have $500,000 or more in their savings accounts, asking them to reduce those deposits, “so that we’re able to receive the deposits of more members.”