Strategy Requires Counterintuitive Thinking

By Ray Birch08.12.2019

One person has a suggestion for credit unions looking to stop cannibalization of existing low-rate deposits as they offer high rates to attract funds to support lending demand—don’t market to the general public.

Raddon VP of Research Bill Handel says that may seem counterintuitive, but in fact it’s the right move. He emphasized the typical financial institution controls only 33% of its depositors’ savings.

“First of all, the credit union has to decide whether or not they have a growth opportunity within their existing membership base, so they need to know what their share of wallet with their depositors is,” explained Handel. “Believe it or not, if the opportunity is there, you are better off advertising your new, higher-rate deposit accounts among your existing members.”

Handel acknowledged that strategy be hard for some credit unions to swallow, as advertising to the community would seem to be the greatest opportunity to bring in new money.

“The problem with that approach is it’s mass media, which means your existing members will learn about the offer as well,” noted Handel. “It quickly becomes apparent to your members you are out in the market with a new, higher savings rate. So, if they have money with you, they will move it to the higher-paying instrument.”

Handel insists it’s much more productive to use targeted marketing and go after existing members the credit union has identified as having a small deposit relationship with the cooperative.

“What you want to do is target the right members, the right demographics,” he said.

Providing Direction

Handel said demographics around age and income provide marketing direction.

“These are strong predictors of deposits,” he said.

Handel said the typical credit union has the greatest potential for new deposits from two member segments.

“People who are over the age 55 who make more than $50,000 a year and they're still employed, that's the number-one group in total dollars available,” said Handel. “Number two, and equal in size, are people making more than $125,000 a year over the age of 35.”

Narrower Targeting

Inside these groups, the credit union should target those with relatively low deposits at the cooperative who have an active checking account.

“Driving down in these segments of the membership will give you your greatest response,” Handel explained.

Since 2010, Raddon has been measuring the percentage of member deposits its clients hold.

“Now, it's about 33%,” Handel said. “Eight or nine years ago the percentage was 29%.”

Handel explained 33% represents a good opportunity to grab new money from existing members. But once the CU reaches 40% to 45%, the opportunity sharply declines.

“It then becomes much more difficult because members simply don't want to keep that many dollars in one place,” he said.

Effective Design Needed

If the credit union decides it does not have the opportunity within its existing members, then effective product design is needed to attract money and not cannibalize existing dollars, Handel said.

“You’re going to have to be very effective at using product design—that's where you start adding some things like restrictions on money from existing accounts,” said Handel. “A few years, ago if you talked to the industry about this practice, nobody was doing it. Today a much higher percentage of credit unions is doing it. Many in the industry had argued against this but now I think they're saying it makes a lot more sense.”

Handel said if the credit union decides against restrictions that might upset existing members, then savings products need to be designed to attract new money from current members.

One Bank’s Approach

“For example, you might put a high enough minimum balance threshold on the account to get the rich rate, which will encourage members to bring over new money,” Handel said. “You can also use relationship pricing, bundling together a couple different types of accounts, for example. Chase recently ran a brilliant ad. They said open a checking account with direct deposit and receive $300 if you open a savings account that has a $15,000 minimum. Keep the money there for 90 days and get another $200.

“What's really interesting about this is Chase is using a technique the auto dealers use,” continued Handel. “Automotive financing never talks about interest rate, they talk about monthly payment, because that's much more real to the average borrower. The average consumer doesn't think about 2% they or 4% rate on a car loan, they think about the monthly payment. So here, Chase is not talking about interest rate, they are talking about the bonus.”

Reprinted with permission from, a leading source of news and resources for credit union decision-makers.