If you’re like many banks and credit unions, you’ve been offering 0% free checking and using CDs to drive deposits. But what if you turned that approach on its head and used high-yield checking accounts to drive deposits?
Like water flows downhill, deposits flow to the highest rate. When consumers inevitably ask, “What’s your best rate?” will they be more delighted to hear the answer is a high-yield checking account or a CD? Clearly, consumers will prefer the checking account. After all, who doesn’t like more liquidity?
But there’s a giant advantage for you as well. These deposits will cost much less and will come from people who give the name of your institution as the answer to “Where do you bank?” Now, those are the kinds of deposits that you want.
Atlantic Federal Credit Union and Bank of Tescott have both experienced this, and high-yield checking accounts have become a long-term strategy for both because the products benefit customers and provide the institutions with long-term relationships.
CDs can bring in deposits, but not real growth.
CDs are a great way to bring in fast cash, but they don’t help with your long-term growth goals. You can offer better rates than CDs and build a relationship with the consumer. High-yield checking accounts are stickier and create deposits that last.
That doesn’t mean you should abandon CDs altogether. For many institutions, they remain an important part of their portfolios. For example, MCT Credit Union offers competitive CD rates to take care of members who want CDs, but they use high-yield checking and savings to drive deposits.
A 6% promoted rate doesn’t mean a 6% cost.
Now, we aren’t suggesting that 6% is right for every institution. A variety of factors must be considered, and each institution is different. But there are many institutions at 6% (and higher) and hundreds running high-yield checking as their highest-rate product. This is a proven idea that works. Let’s see how.
First and foremost, you get to decide the activities that will help your institution become the primary financial institution, including choosing e-statements over mailed statements, a minimum number of debit card transactions, and/or setting up direct deposit.
For example, the more ACH transactions an institution has with a consumer, the more likely they are to keep that consumer. If your electric bill comes out of your checking account, you’re going to make sure that there’s always money in that account. This product design incentivizes the consumer to think of this as their main account and become the default card for their digital payments.
One credit union asks members to swipe their debit card 12 times per month, have one ACH transaction, and use e-statements to qualify for high-yield rewards. These are simple things, but they’re also extremely important in making people feel connected to your institution.
Choose the structure that works for you and your account holders.
Since some of their members swipe much more than 12 times per month, Atlantic Federal Credit Union has added a second tier to their high-yield checking account. Members who swipe 15 times per month receive 3% on balances up to $15,000. Those who swipe 30 times per month or more are rewarded with a 5% rate.
If account holders don’t meet the qualifying criteria, no problem. They’re informed why they did not qualify and simply earn the published base rate — perhaps 0.5% — and the account remains free. No bait and switch.
This type of account inverts the typical rate structure since the high, promoted rate is paid on the portion of balances below a certain cap. Any portion of balances above the cap earns a much lower rate. The size of the cap has a tremendous impact on the average balance and allows you to predictably grow deposits to achieve a blended rate that significantly reduces the cost of funds (COF).
Are you ready to experience real growth?
Banks and credit unions that still rely on traditional methods of increasing deposits tend to suffer from deposit runoff, increasing COF, and cannibalization of low-cost core deposits into CDs — and they feel the squeeze on margin.
High-yield checking accounts allow you to entice consumers with an attention-grabbing promoted rate AND create a long-term relationship — while lowering your overall cost by a substantial amount.
Happy consumers. Happy institutions. Win-win.