How credit unions can retain and attract deposits in 2023

Challenges in growing and retaining deposits in a rising interest rate environment are creating liquidity pressures for many credit unions. For example, 30% of credit unions with $1 billion or more in assets now have loan-to-share ratios above 90%, while 30% have cash and equivalents below 4% of assets.

This situation is quite different from recent years when credit unions were awash in deposits and struggling to find optimal ways to put that liquidity to work. While federally insured credit unions were able to increase deposits over the first three quarters of 2022, they are now under increasing pressure to hold onto them. Some credit unions could be forced to sell securities to manage the liquidity issue, at a potential loss.

Recent rate hikes have forced many credit unions to choose between increasing what they will pay for a deposit relationship or risking losing members to competitors. Losing a deposit relationship also means losing a chance to introduce an individual or business to loans and other fee-generating services.

Credit unions must deploy the right strategies to keep deposits on the balance sheet, including the following approaches.

Let Data Be Your Guide

Consumer and business deposits are a critical, low-cost source of funding for loans. Until recently, deposits, even CDs with mid-term commitments, were paying mere basis points to depositors, which removed the common “rate shopping” motivations for all but the largest balances.

Depositors expect to be paid more for their business with every rate increase. Enticing rate offers, a long-standing practice for credit unions, are already appearing on social media, a channel that barely existed the last time there was intense competition. In short, members are fully aware that they have alternatives.

To help compete in this competitive environment, monitoring the market to understand competitors’ moves while using data analytics to identify account segments is critical. This enables credit unions to develop appropriate strategies along the way. Understanding member demographics and the broader market will help determine which accounts offer the most-promising opportunities to deepen relationships – helping to identify the best candidates for outreach and the correct messaging.

Extending the best offers for members with the potential to engage across multiple products over the extended horizon is often the most-beneficial approach. Existing internal and external data should enable credit unions to uncover such opportunities and be competitive.

There’s No Business Like Small (or Midsize) Business

Business accounts of all sizes often carry higher balances, which is important to remember when the goal is to attract and retain the most deposit dollars. Credit unions should analyze their portfolio of retail members because there is a decent chance some are operating full-time small businesses or are engaged in the “gig economy”.

Credit unions should also evaluate existing lending relationships for possible deposit offers. Creating specialized business accounts tailored to key demographics, focusing on features, pricing, rewards, and other bells and whistles, can also generate deposit accounts. Many successful small businesses will grow into midsize companies with even bigger balances.

Frontline employees are the best ambassadors, which makes it crucial that they are adequately trained, including honing active listening skills to ask the right questions, quickly recognize opportunities, and respond with relevant, personalized offers.

As balances come under pressure, the ability to retain and even gain deposits will serve as a differentiator for credit unions, particularly when demand for loans returns. Capturing low-cost deposits will assuredly help credit unions stave off margin pressure.

Mark Sievewright

Mark Sievewright

Mark Sievewright leads the Sievewright & Associates business within SRM and serves as Chief Strategist - Credit Unions. Web: Details