Fuel Deposit Growth in Support of Greater Financial Stability

Often with lower fees and competitive interest rates, credit unions are owned and operated by their members rather than shareholders, making them a compelling choice for individuals seeking a member-centric banking experience. At the end of 2022, the U.S. had nearly 5,000 credit unions across the country totaling over 135 million members, according to the NCUA. Because they are structured as not-for-profit organizations, credit unions strive to ensure greater financial stability, distributing net profits to members while balancing more personalization and member-focused services. One of their primary sources of funding comes in the form of member deposits – savings, checking, money market accounts and certificates of deposit. The current economic environment has strained some credit unions with liquidity challenges as they strive to maintain and grow member deposits.

Approximately 9% of households hold over 60% of all U.S. deposits, as noted in the Equifax eBook “Quick Guide for Credit Unions to Grow and Protect Deposits.” This emphasizes the importance of identifying existing members and potential members with the capacity to increase deposits. While deposit growth is a priority for many financial institutions, credit unions may lack the information necessary to identify their best opportunities.

Why CUs Need Continued Deposit Growth to Maintain Financial Stability

During periods of economic stress, financial institutions often adopt a heightened awareness of risks. This year, a number of U.S. lenders have adopted tighter credit standards to help shore up liquidity as they anticipate a deterioration in the quality of their portfolios. Whether building deposit reserves to weather a potential downturn or pursuing funds to continue loan portfolio growth, maintaining and growing member deposits is a necessary initiative for many credit unions.

Deposit growth can be more challenging than usual in the current economic environment for several reasons. Persistently high inflation impacts spending power, forcing consumers to spend more and save less. Meanwhile, as the Federal Reserve raises interest rates to help reduce inflation, members can be enticed by options for a higher return on their deposits. As consumer spending continues, gradually depleting pandemic savings, some credit unions are simultaneously struggling with deposit flight when members accelerate withdrawals.

A common consequence for credit unions is a restricted capacity to support loan growth. A successful deposit growth strategy, in combination with advanced credit underwriting procedures, allows credit unions the capacity to continue lending even during periods of economic uncertainty.

How CUs Can Fuel Their ­Deposit Growth Strategy

Data driven insights can help credit unions boost the results of deposit acquisition and retention initiatives. The segmentation of members and prospective members by household wealth measures allows more directed marketing efforts and personalization of offers toward high value opportunities. Below are a few ways credit unions can leverage household wealth data to grow deposits.

Capture a greater share of existing members’ deposits. A credit union knows which members hold the largest deposit balances. However, some third-party data is required to estimate balances that their members keep on deposit with other financial institutions. That information can help identify opportunities for deposit transfers.

Acquire new members with large deposits. A credit union can boost the impact of marketing initiatives by segmenting their prospect lists. Prioritizing consumers with large account balances at other financial institutions allows credit unions to adapt acquisition campaign messages and incentives effectively.

Identify consumers with near-term asset growth potential. A credit union can target specific demographics that hold the most opportunity to bring in new deposits. Among these, for example, are young affluent consumers who hold deposits almost 12 times higher than deposits of young non-affluent consumers, according to Equifax’s eBook.

The value of untapped opportunities may be surprising. One credit union used deposit estimates from Equifax to develop a campaign that could expect to bring in over $70 million in new deposits held by current members at other financial institutions.

In addition to member and prospect segmentation with data insights, it is important for credit unions to continue to prioritize retaining their existing members through incentives, competitive rates and exceptional member service. A commitment to expand their digital banking services and financial education resources may appeal to younger consumers. As part of their mission, credit unions often focus heavily on supporting and connecting with their local communities. Through these partnerships with local businesses, credit unions can further establish themselves as the community-focused financial institution. Meeting the needs of small businesses by offering deposit accounts and tailored financial services also gives credit unions the ability to build long-term relationships and grow their deposit base as they grow their business. By offering personalized service and specialized deposit products, such as jumbo CDs and money market accounts, credit unions can also attract large deposits from high-net-worth individuals. Catering to the specific needs of these demographic groups can be instrumental in expanding the credit union’s deposit base.

As economic uncertainty persists, credit unions must continue to diligently manage liquidity, with a sharp eye on deposits. Ultimately, a financially stable credit union can offer its members peace of mind and a competitive advantage over other financial institutions.

Nancy Mills Vice President, Credit Union Vertical Leader Equifax Atlanta