CUs Maintain Fee Advantage

Turn a sizeable fee advantage over banks into membership growth and retention.

May 13, 2013

Credit unions offer a powerful combination of essential member services and member-friendly fees. But striking the right balance between your credit union’s fees and its financial viability can be a tricky balancing act.

“It’s a lot easier to grow your membership—and retain the members you have—if you have a favorable and competitive fee structure,” says Jon Haller, CUNA’s director of market research and co-author of the CUNA 2013-2014 Fees Report.

But a slow-moving economic recovery and shrinking margins mean a greater dependency on fees. Noninterest income (including fees) represented 28.6% of total income for credit unions as of yearend 2012. And without fees and other income, credit unions’ return on assets (ROA) would be a negative 61 basis points.

Credit unions’ sizeable fee advantage comes at a time when consumer dissatisfaction with the banking industry remains high. By offering a low-fee alternative to banks, many credit unions have turned this dissatisfaction into a significant membership growth opportunity.

More than 70% of consumers would consider leaving their current financial services provider if it raised checking fees, according to Bankrate’s 2012 Checking Survey ( Credit unions, however, continue to charge lower fees than banks for financial services—and they’re less likely to charge fees in the first place.

Credit unions can attract more members and retain existing members by highlighting their lower fees and their competitively priced checking accounts.

Lead with checking

Consistent with past trends, credit unions are leading the way in providing affordable, consumer-friendly checking accounts. These accounts serve as the cornerstone product for building stronger financial relationships with members. Checking account use is tied to use of other services, member loyalty, and an improved bottom line.

Free checking—an account with no monthly fee and no minimum balance requirement—is a big draw for consumers. Eighty-two percent of credit unions that offer checking accounts offer at least one free checking program.

Conversely, the percentage of banks offering free checking has been decreasing since 2010. Only 39% of banks currently offer free checking—a steady decrease from 76% in 2010 and 45% in 2011, according to Bankrate’s survey. “That’s a major opportunity for credit unions to position themselves against their competitors,” notes Haller.

Nearly 60% of credit unions that offer interest-bearing checking accounts do not charge a monthly maintenance fee. Only 8% charge this fee, while 32% waive the fee if the checking account meets a certain minimum balance requirement.

Consider, too, the striking contrast between banks and credit unions where an average minimum balance is required to avoid fees. The credit union average of $1,010 is $5,000 lower than the bank average of $6,118, according to the Bankrate survey.

And among credit unions that charge monthly maintenance fees, the average is $6.36—less than half the average $14.75 bank fee.

Eighty percent of members with credit union checking accounts consider their credit union to be their primary financial institution (PFI)—the financial services provider they rely on for most of their business, according to CUNA’s 2011-2012 National Member Survey.

By convincing members to use online banking and a balance-carrying product (such as a car loan or a money market account) in conjunction with checking, credit unions can dramatically increase member loyalty. Loyal members will recommend their credit unions to others, and they’ll return to their credit unions the next time they need financial products or services.

Highly loyal members also have outstanding loan balances that are nearly 40% higher than less loyal members, according to CUNA’s member survey.

NEXT: Checking Accounts

Checking accounts

Checking accounts provide the largest source of credit union fee revenue, coming from overdraft protection, courtesy pay, and nonsufficient funds (NSF) charges. The fee income derived from these three fee sources accounted for about 34% of credit unions’ total 2012 fee income. Here’s a closer look at these three sources of checking account fee income:


Following checking account fees, loan fees serve as the second-largest source of credit union fee income. Fees from first-mortgage loans combined with other loan fees account for 23% of total fee income.

Consistent with past trends, about half (47%) of credit unions offer first mortgages. The likelihood of offering first mortgages tends to increase with asset size.

Closing costs associated with first mortgages include the total estimated settlement charges on a good-faith estimate; all fees from origination, appraisal, processing, and underwriting; and charges for title, government recording, transfer, and any other additional settlement costs.

Median closing costs for credit union first mortgages are $1,500. Nearly 30% of credit unions, however, charge less than $1,000 for closing costs on first mortgages.

More often than not, credit unions don’t charge members a loan application fee when prospective buyers are looking for their first mortgages. Fee-free applications outnumber fee-levied ones by a 2-to-1 margin—a ratio that doesn’t vary much by asset size.

Member business loans

Since 2008, the prevalence of member business loans has been gradually increasing. Almost 25% of credit unions offer member business loans—up from 17% in 2008 and 19% in 2010. The percentage of credit unions offering member business loans is highest among those with assets of $200 million or more, in a range between 50% and 65%.

Among credit unions that offer member business loans, those that don’t charge application fees outnumber those that do by more than a 2-to-1 margin— 70% versus 30%, respectively. Among those that charge application fees, the median fee is $150. This has decreased from $200 in 2010.

Credit unions with assets of $200 million or more are more likely than smaller credit unions not to charge application fees on member business loans.


Fee education

It will always be a challenge to find the right balance between fees and free products and services. While some fee adjustments might be necessary, such as reconsidering the number of free transactions members can make at ATMs not owned by the credit union, it’s important to educate members and staff about the necessity and suitability of fees.

One of the goals of the credit union movement’s “Unite for Good” shared vision is to “foster service excellence.” Its website ( contains benchmark data to help you set competitive rates and fees. It also provides a checklist of action steps to help your credit union achieve other Unite for Good goals. Use the tools under the “foster service excellence” goal on the checklist to help your credit union maintain its local competitive advantage.

As fee structures change to reflect costs, make sure employees understand just how competitive their credit union really is. Staff should know what other institutions are charging so they can help put credit union fees in perspective.

“Invest in your employees and in marketing so your credit union can do a good job of explaining any fee changes to members,” advises Haller.

Adapted from the CUNA 2013-2014 Fees Report,