Auto Savings : Project Summary
The Market Need
In a consumption-driven society where we are constantly barraged with advertising that urges us to “Buy! Buy! Buy!” exercising savings discipline is difficult and promoting savings can feel hopeless. But what if saving money was as easy and attractive as… well, spending money?
The Solution
By linking a “want to have” (consumption) with a “should have” (savings), credit unions can give members access to an easy way to save. Members who take out auto loans are asked to make a binding commitment to have an automatic monthly deposit into their savings accounts for the term of the loan. For as long as they borrow, they also save- automatically and painlessly. These funds are off-limit for the term of the loan, but they can be accessed to pay for auto repairs.
There are three key features behind Auto Savings:- Automatic. Once the borrower commits, the savings deposits are automatic.
- Bundled. The product links a difficult and often unpleasant activity (saving) to something easier and more fun (car buying).
- Committed. The funds are locked up for a period of time, and the member faces penalties for early withdrawal.
The Benefits
Auto Savings is easy for credit unions to develop as a product, easy for credit unions to integrate into their existing sales processes, and easy for credit unions to tailor to their specific needs. Other benefits include:
- Drawing on existing credit union products.
- Does not require any system programming because, technically, the products are linked only by the fact that they are sold simultaneously.
- Staff time is limited.
- Credit unions have latitude in setting the product terms.
The First Step
Auto Savings is designed to make the saving process easy for members. The product is also easy for credit unions to implement and administer.
These five steps can help you implement Auto Savings in your credit union:
- Select the savings product that you will use. Consider minimum/maximum monthly deposit, interest paid, extent of early withdrawal penalties, and permissible uses for early withdrawal of funds.
- Develop a new contract for the savings component.
- Develop marketing materials.
- Develop staff training materials, and train your staff.
- Consider bundling savings opportunities with other loans, like credit cards and mortgages.
