<p>LANSING, Mich. – What's a member to do? Interest rates are low, and members don't want to lock up their money in a three-year or five-year CD. What if rates go up? What's a credit union to do? Members, shying away from long-term commitments at low interest, are creating a need for funds to support other products, especially mortgages. The answer at State Employees Credit Union is a Step-Up CD that lets a member move up to a higher interest rate if rates indeed climb. "We have to try new things," says SECU CEO Steven Winninger. "It's a low-risk approach." Winninger notes the average balance in Step-Up CDs opened so far is more than $20,000. He credits Jesse Glossinger, a SECU senior analyst, with the product. "I knew we had a need for longer-term funding," Glossinger explains. "We have a lot of members who are storing their savings in money markets and regular share accounts. They don't want to lock up their money at 4.5 percent for five years." The solution came to Glossinger several months ago when he attended a rate watch seminar. A step-up CD was one of about 20 possibilities the presenter offered. Glossinger brought the idea back to the credit union, it was adopted and introduced March 1. Response was slow for the first three or four weeks. Then, as marketing materials hit members' mailboxes, activity accelerated. By mid-April, Step-Up CD deposits totaled $1.5 million. Information on Step-Up CDs accompanies renewal notices to members who already have CDs. The product is publicized in the SECU monthly newsletter, on the Web site, and with posters in all branches. "Right now we have it scheduled to last only until the end of June. We can extend it if demand is still there," Glossinger says. The big challenge is educating members: you can only step up one time, and when you do step up, you get the rate that applies to a CD for the remaining term of your CD. For example, if you have a five-year CD and decide to step up after four years, your new rate is the one that applies to a one-year CD. So members not only have to anticipate future interest rate changes. They also have to consider how the term of their CD affects the rate. A key advantage from the credit union's viewpoint is the opportunity to extend deposits and obtain more long-term funding, a real plus for SECU which is experiencing heavy mortgage demand and wants to match fund life. Glossinger though advises on the possible negative side of the step-up CD product. "You might experience some current margin squeeze by having short-term dollars moving into longer-term CDs. If you're currently dealing with a slim margin, it might make it even slimmer for the time being until long-term rates go up," he says. -</p> <p>[email protected]</p>