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MADISON, Wis.-When credit union members are better informed about uninsured accounts, they are more likely to use them, a recent Filene Research Institute study found. “In the last few years, a number of credit unions have expressed concern about the lack of alternative sources of capital,” the study, Uninsured Accounts: An Assessment of Member Interest, reads. The study found that one source of alternative capital might be from credit union members, in the form of uninsured accounts. When this possibility is raised, it evokes a wide spectrum of reactions from credit union CEOs, all the way from, `good idea’ to, `don’t care’ to, `no way.’ According to the study’s authors, the purpose of it was 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,” the authors state. The study by Jinkook Lee of the Ohio State University and William A. Kelly Jr. of the University of Wisconsin-Madison divided 240 participants equally into four groups. The control group got only a description of an uninsured CD product, while a second group received comparable interest rate information in dollar amounts. Another group received information on credit union failures that would cause a loss in uninsured shares. The final group received information on returns and risk. This last group indicated it was the most likely (87%) to use the uninsured CD. Of the group that received information only on returns, 40% said they would probably use such an account, while 47% of the group informed of the risks said they likely would use the product. Only 13% of the control group said they would. “The results of this 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,” Filene Executive Director Bob Hoel, said. “That’s especially true when the product is offered 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.” Responses were more favorable when the sample members were permitted to divide funds up between insured and uninsured accounts. Sixty-three percent of the control group said they would place at least $1,000 into the uninsured account. Of the group informed of the returns, 87% said they would allocate at least $1,000 into the uninsured account and 93% of the group told about the risks said they would put at least $1,000 into the account. The median allocation for these two groups was $5,000. The final group, armed with the knowledge of both the risks and returns, would place a median of $7,500 into the uninsured account. However, this is not as easy as it sounds. “There are also legislative and regulatory hurdles that need to be addressed,” Hoel added. “Currently, most credit unions that are not designated as low income have very severe capital-raising restrictions. This study should be very helpful to public policy makers when reviewing the appropriateness of new alternatives for building credit union capital and improving safety and soundness.” Additionally, the study lists a number of other questions that must be asked and answered before deciding if credit unions should offer such a product, like “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?” [email protected]

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