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February 12, 2008:  Free gifts with that new checking account—an NFL logo beer cooler or a golf umbrella—have been passé now for several years.  Some banks, realizing that free checking gifts only attract their competitors’ unprofitable segments, are considering dropping FREE CHECKING! promotions completely. With unfunded checking accounts and plummeting retention rates, many institutions scramble to find new ways to attract new customers and members.  
 
Several credit unions may have found the answer: Bonus rates on “introductory” CDs. 

At Patelco CU, San Francisco, CA, new members may open a $1,000 certificate and earn 7% for twelve months.  Pacific Service CU, also in California, offers new members, under the age of 23, the chance to invest as little as $100 to earn 7% for six months.  Older members are required to deposit between $1,000 and $1,500 to earn the special rate.
 
In Michigan, Education Community Credit Union is offering an 8% APY for eight months for a $500 deposit. 
 
For the really elevated rates, Colorado’s Elevated Credit Union, is offering new members who open a checking account as much as 9% for CD deposits between $1,000 and $2,000 for 12 months.
 
TheStreet.com’s Simone Baribeau, who first wrote about this trend, reports that the national average for a 12-month CD currently averages 2.72%.  This means that the CD premium rates, figured as a cost of acquisition, could be as high as $120 at Elevated Credit Union, or a little as $20 at Education Community CU.
 
Spending as much as $120 to acquire a new household relationship could be a good deal if additional deposits and loans follow.  To take that risk, the financial institution would need to be very, very good at cross-sales in the first six months of the new account relationship.  While many banks and credit unions assume they are good at selling, few without automated Matrix-type programs really do manage the new account relationship well.
 
Spending $20 to acquire a new account relationship, however, is almost a no-brainer.  Advertising that your shop pays 9%, or 8% or even 7% would gather attention even with a lot of small print.  The attractive feature about this strategy is that the consumer is asked to bring funds to the table.  The likelihood of at least some of those funds remaining on deposit after the “introduction” should be fairly high, especially if some additional cross-selling occurs. 
 
Elevated CU, in requiring the checking relationship, is likely just adding expense as there is no requirement that the checking account actually be used.  This credit union probably would be money ahead giving away the Bronco-logo cooler than all that interest.
 
Source: www.thestreet.com/s/credit-unions-dangle-high-rate-cds/funds/saving-money/10402926.html

Posted by Mark Rodrigues at 2/12/2008 10:38 AM
Categories: Deposits, Credit Unions, Matrix Mail
 

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