Credit Unions Urged To Move Out To Longer Terms

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Investment professionals are urging credit unions to take some of their bulging stocks of short- term investments, much of it parked in overnight accounts paying as little as 1% or less, and start going out longer on the yield curve.

"Generally, I would say credit unions are sitting on too much cash," said Frank Santucci, director of asset/liability management for credit union bond house First Empire Securities, noting that $60 billion of credit unions' funds were tied up in cash or cash equivalents at mid-year. "Credit unions are paralyzed because they don't know what to do in this rate environment."

Many credit unions continue to hold the vast majority of their funds in overnight accounts, with some paying as little as 40 to 50 basis points. At the same time, those credit unions could be doubling or tripling their returns by going out on the yield curve and buying agency securities or other instruments.

"Imagine how much they could be earning on that $60 billion by picking up 100 basis points," Santucci told The Credit Union Journal.

NCUA data shows that credit unions held almost $66 billion of cash or cash equivalents at mid-year, up $12 billion from year-end 2002.

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