In lending, it’s often a case of “racing to the bottom” regarding rates and pricing. Competitors all try to have the best and lowest rates in town to maximize their loan dollars lent out to the best and most reputable borrowers. In deposits, we are seeing something very similar whereas all our financial competitors are racing to the top. Tossing out gaudy rates and trying to be the first, sometimes even before the Fed makes its next announcement. Sound familiar?
I encourage you to remember, you can’t get blood from a turnip. You can only get blood from livestock, not from produce. Financially speaking, shepherds with their flocks of pricey livestock would be more representative of today’s affluent members while farmers just trying to get by can be more representative of who credit union membership is mostly designed to serve. Credit unions for much of our history were designed to help the underbanked, the underserved, and those that the banks themselves didn’t want to do business with themselves. Let’s get back to that and design our success in deposits with that in mind, much like we do our loans.
In lending, it’s not advantageous to just serve the A+ credit paper. Sure, you know the payment will be made on time, every time. But at such low rates in the past few years, credit unions have wizened up that the thin and lower credit tiers (with charge-offs factored in) create not just more profit but more loyalty among their membership. Why can’t deposits work the same way?
In fact, 80% of American households have less than $50k in savings at all. With so many competitors competing for just 20% of households, who will have the most success winning the business of the affluent shepherds, and how much more of an opportunity would we have if we set our sights on the 80% who probably aren’t being targeted?
Just this week while celebrating a friend’s birthday, a conversation was held in which the party host was talking about their plan of financing their home repairs and remodels with a low or zero introductory rate credit card while letting their savings grow in a 4% savings account. No, this person didn’t have $50k to lock into a CD or share certificate, but they had what they considered a substantial amount invested safely for a predetermined amount of time until they needed the funds to pay off that balance. The unfortunate news though – their account was at a big bank, not a credit union. Why? Because the bank offered them more on a liquid account.
Can we design our liquid savings products with enough benefits, gusto, or bells and whistles as we design our share certificate rates? Yes, it’s much faster to get the deposit dollars through a few large share certificates but ultimately are they just a band-aid for a much larger problem we might be facing?
I know many may be reading this and thinking, “But, I need money NOW.” That’s fine. We all need a band-aid for the bump or scrape at times along the way. But take the time to look forward and see what caused the scrape in the first place. We as an industry have been so focused on the immediate need for loans this past decade, we might have lost sight of serving our members, our ideal members, for their deposit needs as well. Make a long-term plan on gaining more deposit share through direct deposit and offering more unique savings opportunities for the members who have lower savings amounts. You might just get blood from the turnip after all.