High Points For Free Checking

A Minnesota credit union goes against the grain in offering free checking and rewards points.


In June, the Federal Reserve approved a 21-cent limit on debit fees. Many credit union and bank advocates have warned that financial institutions would add other fees or eliminate product rewards to make up for lost interchange revenue, and some financial institutions are making good on that promise. SunTrust's new "Everyday Checking" includes a $5 monthly fee for debit card use. And Wells Fargo is testing a $3 monthly debit fee in its Georgia, New Mexico, Nevada, and Oregon markets. According to CNN Money, JPMorgan Chase is piloting a similar program and Wells Fargo, Chase, and SunTrust have all discontinued their debit rewards program.

But the introduction of Dodd-Frank does not necessitate the departure of free checking or rewards.

“Credit unions have an opportunity right now,” says Sarah Mason, senior vice president for Affinity Plus Federal Credit Union ($1.4B, St. Paul, MN). “As leaders in the industry, our role is to take a stand for what we believe in. We need to stand up for members and stand up for an industry that is based on a cool model.”

To demonstrate the value of credit union membership, Affinity Plus offers products that reinforce the benefits of cooperative participation and ownership. It’s “Better Than Free” checking account waives one courtesy pay fee and foreign ATM fees for high transactors. The account has helped the credit union grow its checking penetration from 39% five years ago to 55% (and growing) now. And when the topic of lost revenue from diminished interchange hit the national stage, Affinity Plus doubled down. Instead of tacking on fees or adopting bank-lite strategies, the credit union enhanced its free checking product by deploying instance issuance machines. 

“With instant issuance machines, members can open an account and immediately use our debit card,” says Elizabeth Hayes, executive vice president and chief administrative officer for Affinity. “There’s no waiting two weeks to get the card in the mail and then activating it. Our interchange increased … and we broke even on the machines within 60 days.”

To gauge the success of Better Than Free, the credit union looks to its financial performance before and after the product’s launch (the following numbers are from December 2006, when the credit union launched Better Than Free, to December 2007):

  • Total debit cards: 11.46% increase
  • Total active accounts: 16.63% increase
  • Signature transaction volume: 17.81% increase
  • Signature sales volume dollars: 20.76% increase
  • Debit card revenue: 22.59% increase (versus 12% growth from December 2005 to 2006)
  • Annualized net income per active account: 6.16% increase
  • Net income per active account: $15.41 increase

But there’s more to credit union membership than free checking. To encourage members to use a variety of Affinity Plus products and remain top of wallet, the credit union created its “Participation Rewards” program. As part of the program, members earn one point for any credit union transaction. Refer a friend? That’s a point. Open an account? That’s a point. Write a check or use the Affinity Plus debit card? That’s a point.

Members can then apply those points in a variety ways, such as to waive fees, adjust pricing (on loans and deposit products), or reduce closing costs.

“Members love that they can adjust pricing,” Hayes says. “It’s all based on participation. They have to use the credit union to get the points. The more they use us, the more they get.” 

It’s a concept members understand. Instead of using Affinity Plus solely as a vehicle for free checking, members invest in other products, too, as evidenced in its increase in products per member.

Click on graph to view larger size. |  Source: Callahan & Associates' FirstLook

What started out as an exercise in cooperative education has turned into a great strategy to take a stand and differentiate itself from its competitors.




Aug. 22, 2011


  • We offer a program very similar to Affinity Plus, we call it Smart!Choice Checking. This is free checking combined with rewards and high interest. We have open over 800 of these accounts, for $4.5 million in the past 19 months. Since most credit unions have not been directly impacted by the recent debit interchange legislation, free checking with rewards and other benefits makes god sense for CUs.
    Greg Strizich
  • I believe the rewards points for using more credit union products is a great idea!
    Tara Harless