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Are You Ready for a Cashless Society?Higher CD Rates at Privately Insured Credit Unions
Not all credit unions have deposit insurance that's federally insured. A small number only have private deposit insurance through the company American Share Insurance (ASI). With some ASI-only credit unions offering very competitive CD rates, I thought it would be a good time for a new review of this issue. You'll have to judge the safety of ASI and the institution to decide if you want to take advantage of these CDs. Below are two ASI-only credit unions which are offering some good CD deals. The rates are shown in the table above the post.
Christian Community Credit Union in California has a long history of very competitive special CDs. Credit union membership is open to members and employees of certain churches and ministries. Please refer to the credit union membership page for more details.
Credit Union 1 has branches in Illinois, Indiana and Nevada. They don't have many details on eligibility in their membership page, but it appears that if you live near one of their branches, there's a good chance you'll be eligible to join.
If you are eligible for the above credit unions and the CD rates are high enough, you may want to consider if you can feel comfortable with ASI deposit insurance. Here are some ASI facts:
- Only a few states allow credit unions to be privately insured (AL, CA, ID, IL, IN, MD, NV, OH and TX)
- These privately insured credit unions are legitimate credit unions that are regulated by their states
- ASI-only credit union liquidations have been rare. One failed in 2009 and one failed this year. In both cases the ASI arranged for another credit union to assume all shares of the failed credit unions.
- ASI has been insuring credit unions since 1974.
- There have been concerns that private deposit insurers have trouble when one of their large insured institutions fails. That may be one reason ASI has provided capital assistance to Silver State Schools Credit Union. This is a large Nevada credit union that has been having financial problems for last few years.
There have been credit unions that have changed from NCUA to ASI and from ASI to NCUA. Patelco Credit Union went from NCUA insured, to ASI insured and in 2008 it once again became NCUA insured. In 2009 I reviewed a Texas credit union that tried to replace NCUA insurance with ASI insurance. Credit union members must approve this change with a vote. As I described in this post, the Texas credit union almost did the switch, but the credit union management changed their minds.
EXAMPLE: NAVYARMY COMMUNITY CREDIT UNION CHANGED ITS CHARTER TO STATE (TEXAS) FROM FEDERAL
IT USED TO BE CALLED NAVYARMY FEDERAL CREDIT UNION
THRU THIS PROCESS THEY RETAINED NCUA INSURANCE (DID NOT SWITCH TO PRIVATE INSURANCE)
Only state-chartered credit unions can choose to switch to private deposit insurance. Federal-chartered credit unions must maintain federal deposit insurance via the NCUA. So all things equal, I would prefer a federal-chartered credit union since there's less chance of the credit union switching to private deposit insurance. However, this is only applicable for those 9 states. Even for the 9 states that allow private deposit insurance, deposit insurance conversions have been rare. And if the conversion is successful, the credit union must allow members penalty-free early withdrawals of all insured deposits.
Small amount CDs I would not mind having one, but for large sums, I will stay away from them, reason, ASI does not insures individual account but collectively only and if the CU folds and there are not enough money to cover the ASI expense, the customers will not get their full amounts of CDs.
“Cost of coverage.
The funding structure of ASI‘s primary share insurance coverage is similar to the federal deposit insurance program for credit unions. Each member credit union, as a condition of insurability, is required to place a non-interest bearing, refundable capitalization deposit with the corporation which is at-risk.
Currently, the deposit requirement for all member credit unions is 1.3% of a credit union‘s total shares. “
Further it states that:
“Cost of coverage.
The cost is dependent upon the maximum policy limits assigned to the credit union. All insured credit unions remit a 1%, refundable, at-risk deposit based on the maximum policy limits of coverage. A $5,000,000 policy, for example, requires a $50,000 deposit with ASI. Additionally, insured credit unions pay a quarterly premium based on the actual reported coverage and the credit union’s financial condition and rating. “
Which means, if only one credit union defaults or closes, all of the ASI members will suffer the same faith.
This is a proof that ASI insures the credit union and not the individual accounts.
Do you think the CU reports accurately the amount of deposit at hand? I don’t think so. Who would like to pay that premium to ASI, lot of cheating is going on with ASI.
If only one large CU folds, ASI will be wiped out overnight.
Question: Who is American Share Insurance (ASI)?
Answer: ASI is a licensed, Ohio-based share guaranty corporation that insures savings (share accounts) on deposit with state-chartered credit unions in selected states. Founded in 1974 by credit union activists, the corporation is the nation’s largest private deposit insurer for credit unions. It insures only credit unions.
Question: Who pays for the cost of insuring our accounts?
Answer: There is no direct cost to the member for deposit insurance. Credit union deposit insurance, both federal and private, is "paid for" through a loss of earnings on deposits held by the appropriate insurance fund.
Question: What is ASI’s rating?
Answer: ASI is not currently assigned a traditional insurance industry rating by companies like A.M. Best or Standard and Poor’s due to the limited number of companies in our industry. Financial and other information, however, is supplied to the key rating services annually for their review and analysis.
Question: Who regulates ASI?
Answer: The corporation is dual regulated by the Ohio Department of Commerce and the Ohio Department of Insurance. Additionally, each state in which ASI operates annually reviews its performance and financial condition. Each state also must approve the company to provide primary deposit insurance to its credit unions.
Question: Why would a credit union want to be privately insured?
Answer: Many state-chartered credit unions prefer local (state-level) regulation and nonfederal insurance over federal regulation. As a private insurer, ASI believes that each credit union has unique needs which often do not fall within the "one size fits all" approach of federal programs. By working with their corresponding state regulator and ASI, privately insured credit unions are more often able to formulate programs to meet the changing demands of their membership.
Most important part is that ASI is not rated by any credit agency in USA, it is a RED flag for me.
The current economic situation has left many credit union members asking questions about the safety of their savings. In response, ASI offers the following about its deposit insurance programs:
Members deposits in an ASI primary insured credit union are insured to $250,000 per individual account, no matter how many accounts they have with the credit union.
ASI is not rated by any US or private Government entity and the numbers thrown out by ASI are just misleading. They only hold 10% insurance per CU of the whole amount deposited in them, that is what their Re-Insurance guaranty fund and investments in other assets are available for coverage. They are state chartered company and only has to follow the state laws of the home state and nothing else. US laws do not apply in any agreements between the ASI and any CU.
You have to dig dipper into their annual statements to find the real numbers.
ASI claims that you can insure $5 Millions per member in a CU, have you run the costs to the CU to hold that much money for you only, insure it and pay you interest on top of it?
ASI web site is for information purposes only and not a factual working data or numbers posted in it.