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Join Now. Get Bonus Rate
This entry was posted on 2/12/2008 10:38 AM and is filed under Deposits,Credit Unions.
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
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