Need a CD Stampede?
$1 billion 1st United Services Credit Union knew members were starting to show more interest in deposit rates as the Fed started increasing the base rate.
Steve Stone, CEO of the $1 billion CU in Pleasanton, Calif., saw a dramatic illustration of that interest in October when 1st United CU offered a 3 percent interest rate on a 36-month CD and started a stampede.
“We typically run promotions like that for a month, but we hit our target of $20 million in just two days,” he reports. “We pulled it in just over a week, and by then we had $40 million. We saw results beyond our wildest dreams. It was tremendously successful from depositors’ standpoint, but I wouldn’t do it again.”
That’s because a 36-month certificate is a standard 1st United CU product. The rate and term are fixed. It’s basically vanilla, but the CU adds nuts and sprinkles in the form of a bump. Holders have a one-time right to bump the rate they are receiving on that CD up to the rate the CU is currently offering, Stone explains. They also have a right to add new funds to that CD anytime without penalty.
“Some members take the bump when the difference gets to 10 basis points,” Stone reports. “Some wait to see if they can get more. They have to ask for it, and timing is up to the member.” This meant business as usual until the 3 percent offer surfaced, and then a lot of bumping went on and bumped the CU into a higher cost of funds. Before the 3 percent offer, the 36-month certificate was yielding 1.50 percent. “If we do it again,” he says, “we’ll pick a term that’s not already on our books, maybe 30 months. Then the money we take in would have to be in new CDs.”
CDs are the quickest way to raise deposits, Stone says. “We promote checking accounts a lot and offer rewards to members for referrals. That’s good business, but it’s a slow way to raise deposits. For that, you need to reach the people with money, and that’s with CDs. A small percentage of our members are responsible for most of our deposits.”
Deposit strategy at 1st United CU is dictated primarily by loan demand, Stone reports. “We perform best with a 90-95 percent ratio of loans to deposits, and we hit 90 percent in April. Now the conversation is about whether to increase deposits or slow down lending. We’ll probably do some of each.” Maturity matching is not rigorous at the CU, but it has a lot of automobile loans with average durations of about three years, so three-year certificates are a good fit, he adds.
1st United CU competes with a couple financial institutions that offer high-yield checking accounts. “They’re not taking much business from us,” Stone reports. And he’s not interested. “Our debit card usage is already pretty good, so it would just drive up our costs and add complexity to the product.”
Richard H. Gamble is a freelance writer based in Colorado.