LAKE BLUFF, Ill.-Estimating again that $400 billion in checking deposits could be on the move this year, one economist recommends CUs exercise excellent expense control to not only protect their portion of these funds, but to grow share from banks.
Michael Moebs, economist and CEO at Moebs $ervices, told Credit Union Journal that beginning Jan. 1, about $400 billion in checking deposits had the potential to start searching for a new home (Credit Union Journal, Jan. 7). That's the amount Moebs' data conservatively indicates resides, at all FIs, in non-interest-bearing checking accounts above the standard $250,000 insurance maximum. CUs' share of this money is approximately $400 million.
Effective Jan. 1, legislation that created unlimited deposit insurance from the NCUSIF and from the Deposit Insurance Fund for non-interest-bearing checking accounts expired, per Dodd-Frank guidelines, rolling back coverage to $250,000 per account. Moebs data also shows that there is more total checking account dollars on deposit today ($1.3 trillion) than at any time in U.S. history.
"We have found that when a financial service is in chaos, as the checking account will be this year, those who win are those who have good expense control," Moebs told Credit Union Journal. "We have seen this time and time again."
Good expense control allows credit unions to afford attractive pricing, Moebs pointed out, such as keeping free checking, offering a tiered share account with a very attractive top tier and introducing discounted CDs-three things Moebs believes will protect and increase CUs' share of the checking account money that will be on the move.
What's 'Vitally Important'
"It is vitally important that a credit union have extremely good control and understanding of their checking account processes," said Moebs, who noted that such control can allow the CU to offer overdraft pricing at below $20, a price point that not only increases OD activity and revenue, but provides a safety net for members.
Moebs emphasized that the mega-banks and money market mutual funds--led by the Merrill Lynch Cash Management Account and the Schwab checking account--have their sights on this money and have been targeting customers for many months. But the economist believes a tiered share account could help protect checking dollars from moving, limiting the number of tiers and paying just above 1% on the highest tier.
"The well-run credit union should not even flinch at paying 75 basis points, as that is still a low cost of funding. They can even go higher, to a full point or possibly 1.5%. That will stop members from moving when Schwab calls. It simply won't be worth the trouble for the member to move."
Moebs believes credit unions can avert some of the checking money from heading to T-Bills by introducing new CD pricing. "Price the CD at a discount off face value instead of the standard principal plus interest. For example, a $1,000 CD could be priced at $975. And here's the kicker, you can advertise no early withdrawal penalty."
Moebs added the three strategies also protect all "near money" deposits, which outside checking include all transaction and insured savings accounts.
For info: Moebs $ervices: www.moebs.com. -Ray Birch
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