SOUTHFIELD, Mich.-With deposit rates so low, Michigan Services CU here is looking to its members to provide stronger returns while keeping the credit union on strong footing.
The $11-million CU is offering a "share pledge loan" at rates close to what it would receive if the funds were invested elsewhere-1.5% fixed APR with up to 12 months to repay.
"We've always had shared pledge loans, but we've always priced them to be the best rate we're offering," said President/CEO Liz Morehouse. "If we were offering a 3.9% car loan, that would be the rate and it would have nothing to do what we were paying on savings."
With a 59% loan to share ratio and 10.45% capital, Michigan Services CU is in real need of finding new ways to gin up loan demand. Like many other CUs across the country, the small 1,400-member institution has been in awash in new deposits until just the last month when they began to taper somewhat.
"I'll be lucky if I can get 1.15% if I'm investing in CUs. If I'm investing in banks, I'm getting .4 to .6% so I'm getting a nice spread [with 1.5%]," Morehouse explained.
Share pledge loans work exactly how they sound; in this case members use up to two different savings accounts or CDs as collateral and can borrow as much as they have in those products. The funds that are borrowed against cannot be withdrawn but as the loan balance decreases the money becomes available to the members in their share accounts. When certificates are used as collateral to secure the loan, the rate is 1.5% above the rate of the member's CD.
Members can use the loan for any reason they like, including debt consolidation, college tuition, home repair or even a new vehicle. They can also choose longer repayment terms and only add .5% to their original rates for each additional repayment year. Morehouse said the credit union is just beginning to market the new share pledge loan rate with some fliers in the office as well as a mention in the newsletter. She plans on putting emphasis on the debt consolidation element as well as the longer-term repayment schedule that provides an extremely competitive rate compared to other multiple-year loans.
"Once you take that money out of your savings, it is gone. This is a way to keep that savings and maybe pay off that higher rate card," said Morehouse. "We really hope that it will meet members needs and generate much needed loans for the credit union."
