Credit Unions throughout the U.S. are working hard to provide the right mix of services to members during the current period of inflation and high interest rates. The challenge is that the current challenging financial environment is not likely to end soon.
High Interest Rates and Inflation Continue
The Federal Reserve’s Oct 2022 report shows that U.S. households increased their savings to $2.3 trillion during the pandemic and into the second half of 2021. Since that time, 25 percent of those savings have been spent. The current savings total is $1.7 trillion, which is lower than the pre-pandemic level. Even more important is to understand who holds those savings: households in the top 50 percent hold $1.3 trillion, more than 75 percent, while households in the lower half of income hold approximately $350 billion. And those 75 percent of people need guidance to appropriate products to help them manage through tough times.
During that same period, the U.S. Federal Reserve has raised interest rates repeatedly this year by multiple points in an attempt to tame inflation. Following the November 2022 hike of three-quarters of a point, the fourth in the year, the current rate is 3.75 to 4.25 percent — the highest since early 2008. Despite these efforts, the current annual inflation rate in the U.S. is 7.7 percent, down slightly from the summer’s 8.2 percent. Driven by inflation, continued problems in the product supply chain, and corporate profit-taking, the U.S. Bureau of Labor Statistics reports that consumer prices are up 9.1 percent over the year ended June 2022, the largest increase in prices in 40 years.
Members Are Wary
For credit union management, marketing managers, and members, citing these statistics is largely unnecessary. CUs have seen their member savings account balances dwindle. Volume for housing sales, refinancing, auto loans, college reserve accounts, and other traditionally robust products are down. And members, beset by rising costs for cars, homes, gas, groceries, and virtually all consumer goods and services, have moved into a penny-pinching mode.
CUs Need to Offer Workarounds
Members depend on the credit unions for low rates, friendly service, and good advice. Right now, you can help them best by increasing your communications with your community about how to address higher costs for the goods and services they need.
Among the products to promote:
Credit Cards: Credit Union cards typically have lower interest rates on balances than traditional banks. However, many members continue to use bank-issued cards as a force of habit.
- Educate your members on how much they can save by using their credit union credit cards. For example, a $3000 balance at 5% lower interest rate saves $150 a year in interest, which is likely more than any incentives being paid by bak credit cards.
Home Loans: Home sales pricing has increased significantly over the past two years in almost every area of the U.S., but we now see a dip in volume and prices in response to high mortgage rates. Current rates average 6.91 – 6.92 percent for a 30-year fixed, and 6.22 – 6.25 percent for a 15-year fixed. As a credit union, you can offer rates that are competitive, but are not likely to be significantly lower.
- Encourage your members that if the time is right for them and their family, move ahead. Emphasize that you serve their best interests, and will help them refinance when rates go down
Auto Loans: New and used car prices continue to be high: In the U.S., the average price of a new vehicle was up 6.3 percent in the past year. Used car prices have likely peaked, but new car prices will continue to be high in 2023. On the loan side, the current average auto loan rate is 4.3 percent for new cars and 8.62 percent for used.
- Let your members know that your credit union auto loan rates are lower than dealers or traditional banks and that as a member the balance can be refinanced
ReFis: Refinancing is a good strategy now if a member is using the funds wisely:
- Messaging refinancing is a tactic to help people buy a house now and understand when and how they can drop down to lower rates. It will help to explain that credit unions are not as profit-driven as banks, so that means they will message and facilitate when refi rates become attractive relative to the home purchase originating loan.
- To pay off credit card balances. The member will benefit significantly by eliminating payments that are accruing the 20 percent interest rates of a bank card.
- For smart home upgrades, especially winterizing, plumbing upgrades, solar panels, and other improvements that reduce utilities costs and can create a posiitve return on the loan.
- To improve the appeal and potential price of a home that a member is planning to sell.
Reassure and educate!
Credit union members benefit from having you as their financial partner. Communicate how you are also members of the community, and that you are “with them” during tough times.
While much of your communications work will be on the advantages of credit union products, a good strategy will also include passing along tips on how to save on daily costs, like finding the lowest cost gas stations (provide a link to online maps of gas station pricing), how to save on groceries, find and use coupons for offers on drug store products, groceries, and auto repairs, and other useful money-saving tips.