Executive Summary
In the last few years, a number of credit unions have expressed concern about the lack of alternative sources of capital. One source alternative capital might be from credit union members, in the form of uninsured accounts. When this possibility is raised, however, it evokes a wide spectrum of reactions from credit union CEOs, all the way from, “good idea” to, “don’t care” to, “no way.” The purpose of this paper is to evaluate how members feel about uninsured accounts that pay a higher dividend than insured accounts. We don’t answer this question definitively here, but we have found that one product would have some appeal among more sophisticated consumers.
What is the Research About?
We gave the 240 members in our sample information about a prospective new product, an uninsured CD. In addition, we created four groups of 60 members each, by varying the amount of additional information provided. Group A, the control group, received no additional information beyond the description of the uninsured product. For Group B, we also translated the interest rate information into dollar amounts. For Group C, we provided information on the rate of credit union failures that would have caused a loss on uninsured shares. Group D received the information we gave to Groups B and C. This additional information proved critical to members’ response to an uninsured product.
What Are the Credit Union Implications?
The results of this exploratory study suggest that if presented with the right information in the right way, a substantial portion of members would be open to using an uninsured account, especially in combination with an insured account. However, a number of questions remain to be answered before concluding that credit unions should offer such a product. For example, how sensitive are members to the interest rate differential between insured and uninsured accounts? How sensitive are they to the term of the account? Would staff who offered the uninsured product be exempt from securities licensing requirements? In this study we develop a number of important questions to be answered before concluding that credit unions should offer an uninsured product. We suggest a follow-up study to address these issues.