Paying More for Deposits? Look at Where You Meet Your Members

NCUA’s second-quarter data shows credit unions added $105 billion in deposits over the past year. Nearly two-thirds of it went into money market accounts and certificates. Regular shares, the everyday savings that used to anchor balance sheets, picked up about 14%.

Deposits are growing, but the growth is expensive. Much of the deposit growth is being bought with rate, and that money tends to leave the moment someone down the street pays more. The deposits that stay are tied to a relationship, and relationships start in your channels: the branches, digital tools and outside partners, like employers and schools, that decide where, and how early, you meet new members.

That part used to take care of itself. When someone started a new job at a big local employer, the credit union application often came in the same onboarding packet as the benefits forms. Those new hires often became new members, and many of them were just starting their careers. That pipeline is gone. Direct deposit can land anywhere now, so the paycheck goes to whoever wins the member first. Where you show up, and when, determine whether that’s you. That makes channel strategy as much a deposit decision as pricing is.  

Your Deposit Base is Changing

Every member is getting older, and managing that is like fighting against a current. According to Filene, the average age of a member is over 50 years old, and less than 20% Americans under the age of 40 use a credit union. Why is this a problem? Older members save more and borrow less. It’s kind of like the scales of justice. As the membership ages, deposits stack up on one side and lending demand thins out on the other.

For a while, that looks fine on the balance sheet. Then, those members pass on and their wealth leaves with them because the next generation already banks somewhere else. Cerulli Associates projects $124 trillion in wealth will transfer through 2048, with $105 trillion going to heirs. If the heirs aren’t your members, that money isn’t coming back. 

I recommend boards that track average or median member age the way they track capital ratios. If it’s high and climbing, treat it as a warning sign. If your average or median member age is 52+, that's a warning sign worth taking seriously. Every member gets older each year, and without a steady influx of younger members, the long-term sustainability of your deposit base becomes increasingly difficult to manage.  Believe it or not, most management teams rarely pay attention to it.

Ideally, credit unions should build relationships with members in their 20s and early 30s. Consumers between 35 and 45 may offer greater near-term profitability, but they're also much more expensive to attract. Big banks like Chase are willing to offer nearly $1,000 in incentives to attract new savings and checking account holders in this age group. The opportunity for credit unions is to reach younger consumers before those primary banking relationships are established, while still balancing acquisition costs against the time it takes for those relationships to become profitable.

Go Upstream

You can compete head-to-head for 35- to 45-year-olds who already have a primary financial institution, but larger organizations are paying hundreds of dollars a head to win them. For most credit unions, that’s a little too expensive.

The better play is to move further upstream, to wherever young consumers open their first accounts. I’ve written before about campuses. When I was working at a large credit union in Florida, our higher-education strategy brought in 25,000 members over four years.

Campuses continue to be one of the best sources, but they are only one example.

Be honest about the deposit math, though. A young member’s balance is small. The payoff is the primary relationship you earn before anyone else does, and the paycheck that follows it. In my experience, a successful collegiate acquisition strategy can take four to seven years to reach profitability, depending on when the relationship begins. A first-year student may take six or seven years to become profitable, while a student nearing graduation may reach that point in just two or three years.

But the real value is the consistency of the pipeline. Every year brings a new class of students entering the market and establishing their first financial relationships. Few other acquisition channels offer that same recurring opportunity to build a younger membership base and support the institution's long-term growth.

Specific employer and community groups can also be valuable sources of new members. Police officers, firefighters, and hospital employees, for example, often have financial needs that credit unions can serve through targeted products, services, and partnerships. These opportunities are less about age demographics and more about understanding what matters to a particular group. What can your credit union offer to these members that another financial institution cannot? A strong channel strategy starts with answering that question.

Make the Branch Where Relationships Start

In the FDIC’s most recent household survey, 48.3% of banked households said mobile banking was their primary way into their account, but almost all of them still used a teller or an ATM at least once during the year.

People still come into the branch. They just come in for different reasons. Routine transactions moved to the phone, and what’s left is the conversation where a relationship starts. The credit unions I see doing this well today have reworked their branches from transaction centers into relationship centers.

I've seen credit unions make this shift with meaningful improvements in both member experience and expense management. Traditional branches are largely cost centers when their primary purpose is processing transactions. But when staff are redeployed to focus on relationship building, product recommendations and member support, the branch can become a more productive part of the institution's growth strategy. The goal isn't necessarily to have more branches. It's to make the branches you have more valuable to the members who use them.

Precision Over Reach

It can be tempting to try and show up everywhere, with a little budget in every channel and a message for every age group. That buys reach, but reach doesn’t necessarily keep deposits. A few channels done well, aimed at the members you want for the next 20 years, will do more. Here is where I’d start:

1. Measure your median age and watch the trend. Then break it down by channel, so you know where your younger members are coming from. 
2. Track which channels bring in members who set up direct deposit, and which bring in members who only open a certificate. Those are very different members. 
3. Pick one upstream source and commit to it, whether that’s a community college, a university or an employer group. One partnership done well beats several done halfway. 
4. Ask your board the hard questions. Who will our members be in 15 years, and where AND how are we reaching them today?

There really isn’t going to be an easy pill to swallow here, and none of this will show up in next quarter’s share growth. But the member you reach at 19 is one you don’t have to win back with a certificate special at 40. Organic growth should be a major component of every credit union’s core strategy. You just need to go upstream.

Cisco Malpartida Smith, is Managing Director of Strategic Advisory Services at SRM