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.