LAKE BLUFF, Ill. — Credit unions will miss a huge opportunity to take business from big banks in 2011 if they eliminate free checking.

That's the position of Mike Moebs, who contends that 10 million to 15 million checking accounts will leave mega-financials this year and go to small regional banks, community banks, and credit unions. "By the end of 2011, I believe the big guys will lose 8% to 12% of their checking market share," the economist and CEO of Moebs $ervices told Credit Union Journal, noting the shift is already occurring. "We have seen the big banks' checking share fall 3% in the past year, or four-million checking accounts."

Moebs attributes the banks' loss to higher fees, such as overdraft, and a move away from free checking. "Credit unions can get these bank customers by continuing to offer free checking, but they have to be wise about it. They cannot charge overdraft fees as high as the big guys ($35) and the average of credit unions ($25). If you want to increase market share you must drop the overdraft price below $20. Every credit union we have seen this year and last drop overdraft pricing below $20 has seen a significant increase in free checking."

Credit unions have also seen an increase in interest-bearing checking when they offer a "reasonable" rate, between 25 and 50 basis points, according to Moebs, who said interest-bearing accounts held a 40% share of the checking market (free claiming 60%) over the last few years. That figure only recently changed, when the number increased to 55% for free checking and 45% for interest checking in the past two years.

Moebs believes credit unions can afford to keep free checking accounts — and their checking offerings will appeal to more consumers — if they simplify the structures of their checking accounts and cut the number to only two: one that pays interest and one that is free.

"On an interest-bearing account, don't be misled by those higher-paying products, and pay anything above 75 basis points," Moebs said. "You will lose share. Offer 25 to 50 basis points and have a minimum balance requirement between $500 and $1,500, and lean toward the high end. You do not want to attract the same people who use free checking. There has to be a true distinction between your two checking accounts."

Moebs said a $6 fee for falling below the minimum balance is a good standard and added the only additional checking product the CU should consider is business checking.

"What the credit union movement needs now is to maintain its membership levels and pick up what it can get from the big guys," Moebs concluded. "And it can do that with an efficient checking account program. It is not a matter of retraining and getting a new program, it's about sticking with what you've got and making your program very efficient. Keep your expenses down, simplify your line, and differentiate your two accounts."

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