Question: What kind of credit union would add a $5 monthly fee to a checking account and make members opt out if they don’t like it?

Answer: TCT Federal Credit Union ($291.3M, Ballston Spa, NY).

The bold move last September by this upstate New York cooperative might seem counterintuitive, but it represents a doubling down on mission.

That’s because Peace of Mind offers a long list of features along with that $5 monthly maintenance fee. The checking account includes debit card roundup to build savings, identity theft protection, monthly credit scores, and, crucially, automatic courtesy overdraft services and sharply reduced non-sufficient fund (NSF) and overdraft fees, from $25 for each to $5 for the NSF and $7 for the overdrafts.

It also includes free money orders, statement and canceled check copies, and account research. These services can cost up $10 for users of TCT’s traditional checking account, but it’s the automatic courtesy overdraft, up to $400, and reduced punitive fees that might be the most crucial piece.

Easing The Dependence On Punitive Fees

According to Jean Dudley, TCT’s director of operations support services, the credit union was inspired to transition away from a punitive fee structure after Dudley and branch operations director Caroline Schierloh completed the Leading with Purpose program through Callahan Associates and the Harvard Business School in 2021.

Up until then, 80% of the credit union’s account holders enjoyed free checking while 20% contributed to TCT’s non-interest income. In other words, for that 20%, free checking wasn’t really free. Today, Peace of Mind checking still isn’t free, but account holders save nearly $30 a month on average in NSF and overdraft fees. And since the account’s Sept. 1 launch, the credit union itself has profited, too.

Since inception, Peace of Mind checking has provided roughly $10,000 in additional net income while putting roughly $12,000 worth of punitive fees back into our members’ pockets, says Dudley, who joined TCT in 2018.

And TCT is putting that additional income to positive use for members.

“The benefits and protections included in this account give us the opportunity to provide solutions we didn’t offer before, for much less money than many other monthly services that consumers pay for,” says Schierloh, a 10-year employee of the Saratoga County cooperative.

Additional benefits like these help TCT compete in a crowded market of traditional and online banks and non-banks, including those that offer checking with no NSF fees. It’s a matter of balance for TCT.

“We believe there’s value to offering an automated courtesy overdraft service if it’s priced fairly,” Dudley says. “We’ve been able to cover more of our members’ bills for them while they’re saving money over what we had to charge before for those services.”

Should They Stay Or Should They Go?

TCT launched Peace of Mind on Sept. 1. It automatically opted existing members into the account but also provided an easy opt-out if they didn’t agree the account’s perks offered a good deal at a great price.

Now, after a period of transition and opt-out, approximately 7,500 members have Peace of Mind and about 4,100 switched back to the original account.

Existing and new account holders always have the option of choosing which flavor of checking they want at any time, Schierloh and Dudley add, and many of the members who at first opted out of the new account have since changed their minds.

“We provided everyone with a change in terms letter to let them know about the added features and the monthly maintenance fee, along with instructions for how they could opt out of the account change,” Dudley says. “We felt it was better to provide our members with the additional protections as a default and then happily cancel and return any fees if the member decides they don’t want the added benefits.”

New members have a slightly different experience; the credit union strives to play no favorites when enrolling them into an account.

“Members let us know which account they would like to open,” Schierloh says. “We present them both as great checking account options. There is not a default choice.”

Ease Of Choice And Range of Savings

Although TCT stands by the benefits of Peace of Mind, some members did push back initially to the change.

“We had some question whether we had their best interests in mind by opting them in as the default,” Schierloh says. “But many were relieved by how easy we made it for them to not only switch back but to recover any maintenance fees they were charged.”

Meanwhile, other members expressed appreciation at the ways they would be saving money, including the ability to cancel any credit monitoring services they were paying for from other sources.

The reduction in punitive fees remains an impact highlight, though.

“One member reached out and said this new checking account will be good for her,” Dudley says. “She’s a single parent, and before she got the new courtesy pay, she would be charged $25 at least once, sometimes twice, plus whatever her biller would charge. Now, it’s only $7 one time from us.”

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Before going all in on Peace of Mind, Dudley and Schierloh ran a lot of scenarios with the help of TCT CEO Curt Cecala.

“We knew we needed to offset the cost of the product,” Dudley says. “We were also trying to increase non-interest income.”

Originally, the duo wanted to eliminate the NSF and overdraft fees entirely, but after talking with several stakeholder and service providers realized eliminating the fees altogether would lead to some operational issues and increase certain risks. So, they struck a compromise.

“Instead of giving up, we settled on starting with a $5 NSF and $7 overdraft fee,” Dudley says.

According to Dudley, that price point seems to be the right balance between all of the member benefits the account carries and the credit union’s own financial and operational risks.

Schierloh also stresses that TCT did not make the decision to impose the $5 monthly fee lightly.

“We were concerned about charging a monthly maintenance fee for a checking account,” she says. “We already had a high checking penetration rate with our members. We’ve spent so long bragging about free’ checking that we knew some members weren’t going to want to pay a monthly maintenance fee, no matter what services we offered.”

But TCT believes in the value of the new account and knows the protections it offers are important. Leaders there also know some members prefer to use free checking, and it won’t stop them.

“We decided to give everyone the added protections up front and allow anyone that wanted the typical free checking account to be able to get what they want, too,” Schierloh says.

The credit union now assesses approximately $8,900 a month in NSF and overdraft fees for the 1,100 insufficient funds items it clears each month on average.

“I believe our courtesy program is providing a valuable service for a fair price,” Dudley says.