A St8ment On Patelco's Gr8 R8s

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Patelco CU announced a new savings rate promotion: 8% APY on balances up to $1000 for their members up to the age of 21.

The CU blogosphere was all atwitter with talk of how this will teach today’s youth about thrift and build loyal, long-term members. I’m skeptical, however. I can’t help but wonder:

How much is this really going to bring in? From members really under 21, that is. When I saw the promo, I started filling out account application forms for my kids — all 150 of them. The site says “new money not required.” Sweet.

How much money Patelco is leaving on the table? Granted, there might not be a lot of 7-, 14-, or 21-year olds with $10,000 to put into an account. But, as the site indicates, the APY on a balance of $10k is a hair over 1.5%. You can do a lot better than that at ING Direct. For members with more than $1k, I’d bet that the extra dough goes into some other FI’s oven.

How much money will be there on January 2, 2009? That’s the date the accounts transfer over to a regular share account. What puzzles me is this: What does Patelco think it can do to demonstrate to savings account holders why they should stay with the CU? Of all types of accounts, savings accounts probably drive the least amount of interaction. While I seriously doubt that this would happen, it could backfire.

What impact do promotions like these have on consumers? My take: They train customers to shop on price and to be more price-sensitive. Since so many CUs (and other FIs, for that matter) claim that they don’t want to — and can’t — compete on price, then I have to wonder if this is such a great idea.

Does this really promote thrift? If Patelco wants to promote thrift, then why doesn’t it reward its under-21 members by applying that 8% rate for up to every $1000 they add to the account each month until the end of 2008?

What message does this send to members getting 0.80% on their money? (That’s not a typo). In addition to the Gr8 R8s promo, Patelco is offering 7% (2+ % points better than regular rates) on a 12-month CD to new members. The potential message: New members and 14-year olds are more important than other members, like baby boomers looking for objective advice on what to do with the pre-retirement money they have sitting in CU accounts.

It’s easy for me to play armchair quarterback and insinuate that Patelco hasn’t thought through these questions. I don’t mean to imply that. But other CUs, deciding whether or not to follow suit, should do so with serious consideration.

Sure, it could bring in some deposits in the short-term. But it could also send a message to current and prospective members that “we’re no different from the banks down the street.”

And it’s more than just a marketing promotion decision or product decision — it’s a strategic question. Do you really want to start competing with the likes of ING Direct and other online high-yield account providers on top of everyone else you’re competing with?

You don’t have to convince me of the need for FIs to attract young consumers (I wrote this three years ago). But CUs, in particular, should be — and, in many cases, are — trying the change the rules of the game. Not trying the beat the big guys at their game.

I’d love to discuss this further, but I’ve gotta run — I’ve got 147 more account applications to go fill out.

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