Why Free Checking Still Pays Off for Credit Unions

By: Kari Anne Arnosk, Principal Consultant, Advisors Plus

One of the biggest competitive differentiators credit unions can leverage against big banks and fintech “challenger” banks is not a new product type or techy: it’s free checking! In 2017, 74.9% of credit unions offered free checking. Today, only 20% of credit unions (and 19.4% of big banks) offer this product that is built around no monthly fees and no minimum balance requirements. With checking being the most penetrated credit union product (an average of 58.4% of credit union members held a checking account as of June 2019), now may be the time for credit unions to reconsider bringing the free checking strategy back to the market.

Since the Durbin Amendment passed into law in 2010 (reducing the fees charged to retailers for debit card processing), financial institutions have been looking for ways to increase or maintain non-interest income. Big banks have moved away from free checking and implemented higher maintenance fees and minimum balance requirements for their baseline products. The largest of these banks, holding more than $10 billion in assets, were more negatively impacted by this legislation. However, they continue to have a competitive edge over credit unions due to broader physical presence, more attractive incentives to attract new accounts (in some cases upwards of $600) and deeper digital solutions.

While credit unions holding under $10 billion in assets did not see as big of an impact to debit card interchange revenue, they continue to seek ways to increase non-interest income. Some recent trends include removing free checking and adding requirements with a low monthly fee, as well as implementing new products with “add-ons” such as identity theft packages tied to a monthly fee, which in some instances cannot be waived. Advisors Plus suggests credit unions give their members the flexibility to select these “add-ons” as an option or leverage the relationship to cover that expense, thereby rewarding members for their loyalty.

Additionally, credit union industry data shows that checking account growth is slowing down. Credit union checking account growth peaked at 7.50% in Q3 2012. Since March 2017, checking account growth has decelerated from 6.93% to 5.82%, as of this past June. (Source: Callahan & Associates)

Advisors Plus believes one of the primary reasons for the slower growth is due to millennials shifting their business to free checking products offered by digital-only “challengers” such as Chime and Simple, which also offer a member-friendly digital experience. As of this past January, Chime had in excess of 2.6 million accounts, with 350,000 being added per month. (Source:

Millennials are a key growth segment for credit unions:

  • PSCU Owner data indicates over 50% of new checking accounts are opened by millennials.
  • Nearly half of millennials ages 23-38 prefer debit as their primary form of payment, according to PSCU’s 2019 Eye on Payments study.
  • Millennials have the most total interactions with their primary financial institution – as many as 72.2 times per month, including mobile banking topping the list at 9.2 times per month, per BAI 2018 data.

Leveraging a free checking strategy as a key product can assist credit unions in capturing these millennials who are heavy debit card users and typically do not want to pay fees. Credit unions should keep in mind that it is a lot easier to capture this key growth segment at the beginning of their financial life cycle when they’re looking for their primary financial institution, rather than trying to get a consumer to switch from a financial institution they’ve had a relationship with for many years.

To attract this segment, credit unions should consider offering a free checking product, as well as a product that encourages engagement for valued perks.

One of PSCU’s top-performing credit unions in both checking account growth and debit card growth implemented this kind of strategy and has exhibited debit card growth that is consistently trending above industry average – at 15% growth in transactions and sales over the past three years as compared to the industry average of 7% and 9%, respectively. Additionally, this credit union’s checking account growth is 9.5% versus the industry average of 5.8%, as of 2Q/19.

Another extremely important key to this credit union’s success is that the strategy is executed by a dedicated checking product owner who manages the metrics, establishes growth goals and provides continuous internal communications and training with member-facing staff and line-of-business partners.

To summarize, credit unions can enhance their competitiveness in today’s marketplace by leveraging a checking strategy that includes:

  • A basic no-fee, no-requirements, no-perks free checking.
  • A product that encourages member engagement by rewarding members with valuable perks.
  • Continuous targeted checking acquisition campaigns with an offer (e.g., $100).
  • A dedicated checking product owner to lead the way.

By focusing on checking growth, credit unions can tap into the most valuable and prevalent opportunity to establish primary financial relationships and position themselves effectively against the competition.

In her role as Principal Consultant with the Checking and Debit Card practice at Advisors Plus, Kari Anne Arnosk works with credit union clients to create the most effective strategies for maximizing their checking and debit card portfolio growth. She has a passion for researching trends in the financial services industry and using those proprietary findings to help her clients stay ahead of the curve with customized solutions to meet their business goals. Kari Anne’s unique expertise within Advisors Plus is in working alongside a client’s internal team to analyze debit P & L statements, review the personal and business checking continuum, evaluate growth metrics and understand the competitive marketplace to provide comprehensive but targeted recommendations to maximize growth and deepen relationships.