CUs Resist Margin Squeeze By Being SlowTo Raise Rates

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WASHINGTON - (08/10/05) -- The Federal Reserve moved againTuesday to lift short-term rates but credit unions have beenavoiding the inevitable squeeze on margins by lagging behind theinterest-rate market. But by lagging the market, credit unions arelosing out on new deposits that are seeking higher rates at banksand money market mutual funds, according to CUNA economist BillHampel. Yesterday's 25 basis point hike--the tenth in the lastyear--pushed the target rate for overnight funds to 3.5%. Thatmeans credit unions will soon have to contend with mutual fundmoney market accounts that are paying the 3.5%, a far cry from the1.3% paid by the average credit union on its money market accounts.Credit unions have been slow to match market rates on regularsavings and checking accounts, as well, said Hampel. The result iscredit unions have been able to maintain their return-on-averageassets around 90 basis points, but have seen only 3% deposit growthin the first half of the year, the lowest in a decade. Hampel seesthis as a troubling trend. "If you don't grow, you die," he toldThe Credit Union Journal.

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