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High Yield Checking
Your “Link” To Growth Opportunities

Tom Dufner
Vice President
Strunk & Associates, L.P.

In today’s highly competitive marketplace, where both depository and non-depository competitors contend for members and consumer prospects, it is more important than ever that credit unions develop and expand services that solidify and deepen personal relationships. Service portfolios that address the needs and demands of members establish strong connections (loyalty) that create major barriers protecting the credit union from non-depository and non-local competitive encroachment.

In pursuit of new accounts, internet-based, non-local financial institutions and internet-based investment banks are targeting the traditional, “local bank” deposit base by offering attractive asset services to the consumer. A growing number of internet banks and internet-based investment institutions are now offering high yield checking account products to attract account holders away from local depository financial institutions.

Why would these non-local competitors choose high yield checking as their new marketing tool to secure new accounts? Multiple financial service use is strongly associated with checking accounts. Other financial products are also linked to checking accounts and are usually liquid asset account related (savings, CD’s and money market accounts). Non-local financial institutions recognize that the checking account market offers them the optimum environment from which to generate consistent low-risk non-interest income and develop additional product relationships through cross selling.

High yield checking is by no means limited to internet-based companies. Brick and mortar depository institutions are also moving to high interest checking as a means to increase new accounts and grow their deposit base. Credit unions must prepare themselves to compete on two non-local fronts -- traditional and internet-based financial institutions.

Strategic Considerations

Many experts believe that future success in the financial industry will be a game won by those financial institutions that capitalize on multiple service opportunities that surface through consumer relationships. Therefore, credit unions should consider upgrading their share draft checking products to include a high yield checking account product.

Use your local depository credit union status to your advantage. Advertise and communicate to your members and consumers that your high yield share draft service comes with all the benefits and comfort of a local institution – providing an asset service that non-depository, non-local institutions and internet-based investment firms cannot match.

Because these high yield checking accounts are “linked” to other required services, account holders convert to the use of technology-based, cost saving services that strengthen the financial institution’s bottom line. Other benefits include opportunities to:

• Differentiate your share draft account product from your competitors
• Generate revenue via new deposits
• Decrease costs by converting account holders to cost saving technologies
• Increase retention rates
• Increase earnings as account holders participate in more fee-based institutional services
• Increase debit card transactions

Summary

High yield share draft checking satisfy sales approaches and business models that seek to attract and benefit members that previously were drawn to rates offered by non-primary financial institutions.

Credit unions that offer online services such as high yield checking can present the best of both worlds to their members and prospects – the personalized attention of a local depository institution and a wide selection of internet and technology-based products.

Tom Dufner is Vice President, Northeast Region at Strunk & Associates, L.P., a financial institution advisory service headquartered in Houston, Texas. For more information about High Yield Checking (Reward Checking) and other financial solutions such as Overdraft Privilege Service, you may contact Mr. Dufner directly at 908.689.6742 or tdufner@strunklp.com.

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December, 2007