Dedicated to Deposits: Deals, Data, and Discussion

Credit Union Pays Members to Withdraw Their Money


This is disturbing news for savers. Las Vegas Review-Journal reported that Nevada Federal Credit Union is paying bonuses to members to transfer their savings OUT of the credit union. According to the article:

Starting Monday, the credit union has cut the variable interest rates on deposits held by members that only save money to zero.

"We're losing money, and they are not making money," Beal [CU's President/CEO] said.

So the credit union will pay these savers a $25 bonus for withdrawing amounts between $25,000 and $49,999. The bonus jumps to $50 for amounts up to $74,999 and goes to $75 for larger sums.

Here's an excerpt of the letter to the members from the credit union's President/CEO:

With investment rates near all-time lows, very weak loan demand and increasing deposit insurance costs, it has become difficult for your credit union to earn a positive spread on some of the high-balance deposits. As a result, we have asked a small number of our members with higher balances to consider moving their money to another financial institution to earn a higher rate than what we currently offer.

The credit union has already set many of its deposit rates to zero. Currently, all of its certificates are listed with a zero percent rate.

This reminds me of what happened at ETrade Bank when it slashed deposit rates last year as part of its strategy to shrink its banking business. If banks and credit unions can't make enough loans, they're forced to invest the money into investments like short-term Treasuries which are paying very little. Add on the deposit insurance premiums, and they have no incentive to pay any decent interest rates. According to the article, the credit union expects the NCUA to boost deposit insurance premiums by 0.15% to 0.40% this year. Hopefully, the economy will grow and loan demand will increase so that we won't see more banks and credit unions give up on attracting deposits.

Thanks to the reader who emailed me this news.



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Comments
7 Comments.
Comment #1 by Shorebreak (anonymous) posted on
Shorebreak
This is just the start. There will be a number of banks and credit unions that will start doing the same thing.

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Comment #2 by jerry (anonymous) posted on
jerry
my credit union here in florida sent a note  along with monthly statement,,you can close any cd now with no penalty!!

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Comment #3 by Gaelicwench posted on
Gaelicwench
Whatever happened to people going gang busters regarding closing accounts at the "too big to fail" banks? This is pretty nuts.

I guess it becomes an issue of doing one's homework prior to opening an account no matter where one banks, eh?

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Comment #4 by Anonymous posted on
Anonymous
.

 

>> This is disturbing news for savers.

Yes ... indeed it is!As I wrote many times here, the banks/CUs are not necessarily able to lend at higher rates than what they are paying the depositors/members. 

Example was that of PenFed when they offered "renewal" for 5-year Certificates maturing in Jan 2010 much earlier in Nov 2009 at rates going roughly the same as they were offering the "5/1 ARM".  After November the mortage rates went down, and come January they were even lower than those offered for Certificates.  Therefore on balance PenFed is going to lose money on the portion of lending for "5/1 ARM" it did and the 5-year Certificate renewal it offered.

Considering that a not-for-profit CU is losing money it is no wonder that the banks that are for-profit are facing difficulties.  Therefore ... the people over here - the so called "we-the-savers" over here - need to go a little easy when posting caustic comments about banks.  ( Not that the banks will be paying any attention to such to comments. )

 

Bottom line: If the situation is difficult for the rate-chasers, it is not a cake-walk for the banks either.

 

.

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Comment #5 by Anonymous posted on
Anonymous
.

 

>> This is just the start. There will be a number

>> of banks and credit unions that will start doing

>> the same thing.

 

Wow ... that will be a rather happy situation!

What I'm rather suspecting is that they will be forced to do something worse - such as imposing additional fees, making the minimum balances for checking higher (and higher), and so on.

In other words, once-upon-a-time the banks used to offer free goodies (toasters) to attract the depositors, now and in near-future perhaps they will be foreced to create dis-incentives for those accounts that are rather non-productive.

Banking Guy here maintains several accounts with many banks/CUs with minimal balance and minimal "activity" in the hope that in future he'll be able to take advantage of any upcoming offers quickly.  ( I do the same. )

Obviously such accounts are non-productive and it makes sense for the banks/CUs to try make them productive or create dis-incentives to make the depositors go away.

 

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2
Comment #6 by Anonymous posted on
Anonymous
I recently withdrew $200k from Chase (fWamu's) -- and they were very happy when I withdrew the money may i add. Just like many of you - I got the juicy 5% rate back almost 2 years ago. When i went to the bank the head banker told me they cannot afford to pay a decent savings rate because there is currently no demand for loans. The governments claim that banks aren't lending is only partially true. Banks aren't lending because people are not applying for loans! Many banks have told me that the demand for loans are very low for all products .. home, car, boat, etc. I don't expect the demand for loans to pickup anytime this year this either. Spending our way out of this recession may not be working.  

2
Comment #7 by Terrin (anonymous) posted on
Terrin
When the banks can borrow money from the Fed at a rate close to zero, why do they need it from the little people who expect a return? The fed is trying to encourage spending. That, however, is hard to do when the government made it really easy in terms of tax breaks to move all our manufacturing overseas. There isn't enough service jobs to support the Country. 

3