LAKE FOREST, Ill.—Consumer checking account balances in the past year have soared to record levels at credit unions even as balances in bank checking accounts have been falling, a new report reveals.
The Moebs $ervices Checking Study shows consumers at banks reduced their checking balances 1.8% through June, while members at credit unions increased their checking balances 3% and thrift customers 20.7%.
“Consumer checking account balances at credit unions and thrifts rose so much in the year ending June 30 it offset the banks’ decline, so overall consumer checking balances per account stay the same year over year,” noted Michael Moebs, economist and CEO of Moebs Services.
The report also shows consumers are maintaining a historically high checking account balance ($3,673) among all FIs.
Economic Uncertainty Remains
The significance of consumers maintaining the highest average checking account balance in the history of the U.S. is that economic uncertainty still prevails, explained Moebs.
“When times are uncertain the consumer engages less in spending that impacts the economy. Wall Street may be doing well, but the American consumers have not fully participated in retail goods or services spending since the Great Recession—buying only what they need and stockpiling the rest in their checking accounts. In fact, for many consumer households the Great Recession of 2008-2009 is not over.”
The Moebs Checking Study shows balances in credit union checking accounts have hit an all-time historic high.
“Members are warehousing money in checking accounts due to CUs offering free checking much more than banks,” he said. “Also, credit unions offer lower price fees, especially on overdrafts.”
Good News–For Now
Moebs said the steady rise in credit union checking balances is very good for the movement—for now.
“Credit unions are paying no, or very low dividends on free checking, so the margin between loans and cost of funds is greater,” noted Moebs. “This allows CUs to make lower-rate auto loans and home equity loans.”
But Moebs also posits that if credit unions do not carefully monitor these accounts and offer higher rates on other deposit services, such as CDs, the funds will exit quickly as rates continue to rise and consumer confidence in the economy grows.
“CUs are definitely more at risk than banks because they do not have the high cross-sell rates as do the banks, so it’s easier for members to either move their money or leave the credit union.”
Winners & Losers
Banks still maintain the lion’s share of overall consumer checking balances when compared to CUs and thrifts, the study shows. The Moebs Study also shows the huge amount depositories have in checking—more than $2.1 trillion, when the total checking deposit historically has been around $700 million.
“When this excess $1.4 trillion starts being paid to retail providers of goods and services these merchants will be the big winners as will the economy, while banks, thrifts and credit unions will be the big losers unless these depositories are prepared to offer much higher rates along with free checking and low fees to keep the consumer, especially Millennials,” said Moebs.