The Street Fight for Deposits and Liquidity Continues
October 9, 2019
Growth in core, low-cost deposits seems to be a source of frustration for many credit unions of late. While overall credit union deposit growth is positive, much of the growth is in the form of higher rate member certificates. Member certificates can be a reliable source of liquidity, but the higher cost chews into loan profitability, squeezes the net interest margin, potentially lowering the return on assets.
For many credit unions, the more desired type of deposit growth, regular share and checking growth, has been a significant challenge over the past year. As discussed in previous blogs, a key reason for the difficulty in growing core deposits is the ongoing rate advantage for members to move money around.
On top of continued interest rate incentive to move money, competition is aggressively focusing on core deposits with enticing new account bonuses. While new account bonuses are by no means a new tactic to generate growth, Chase’s latest offer is one of its most appealing.
Like many others, you are probably thinking, what’s the catch? Surprisingly, there are only a few requirements. New Chase customers can choose to sign up only for a checking account and receive $300, or sign up for both checking and savings to receive a full $600. Direct deposit is required for the checking bonus and a $15K balance for three months is required for the savings bonus.
To help put a $600 bonus into perspective, consider a customer carrying the $15K minimum savings balance for 3 months, while also maintaining a checking balance of $5K over that same period. After 90 days, you can decrease the balances down to materially lower levels, just make sure the accounts stay open. The $600 bonus translates to a 90-day, annualized interest rate of roughly 12%. How far will loyalty go with that kind of return?
In the past, changing checking accounts has been viewed as a colossal inconvenience. However, this perception is changing. Opening a new checking or savings account doesn’t have to be done by walking into a branch. The account can be opened online in minutes. In addition, more consumers tie monthly bills to their credit card for points relieving another pain point. Changing checking accounts and getting paid to do so is something consumers will likely find very appealing.
This Chase promotion is one of many examples in a heated battle for deposits and liquidity. What this means is that while market interest rates may continue to fall, it could be a while before deposit rates follow suit. It also means that decision-makers need to dig deep regarding their deposit acquisition strategy. If you are struggling to stimulate discussion internally, consider the following:
- How can we better use business intelligence to understand where deposit growth is coming from and where deposit withdrawal is going? What patterns do we observe?
- How can we better engage with current and new members to not have to compete as much on rate or promotion?
- What is our clear value proposition(s) to attract deposits?