WASHINGTON – Credit unions on Wednesday were being urged to manage their savings rates actively in the wake of another cut in short-term rates by the Federal Reserve–this time a cut of 50 basis points.
Brian Turner, manager of advisory services for Southwest Corporate FCU’s investment services, called on credit unions to make certain all deposit rates are positioned to respond to the Fed’s action.
“Given that many credit unions did not raise share draft or regular share rates very much over the past few years, there might be a propensity to believe that there’s little room to move down–please check anyway,” said Turner in a commentary sent to members after yesterday’s Fed action. “In that money market rates have risen significantly over the past year and in many cases are higher than 3%, all tiered rates need to be reviewed.”
Average rates paid by credit unions remain mired near all-time lows, at just 0.89% for regular shares and 0.61% for checking, according to DataTrac. But credit unions continue to pay much higher rates than banks on CDs; an average of 75 basis points higher for CDs from three-months going out to five years in maturity.
The Fed’s action yesterday, reducing the target rate for overnight funds to 3%, follows last week’s unusually large cut of 75 bps. It was the fifth time the short-term rate has been cut since September.
Bill Hampel, chief economist for CUNA, said yesterday’s action could signal more cuts to come. “The fact that they went 50 (bps) instead of 25 suggests either they wanted to meet the financial market's expectations, or they already know that Friday's job numbers will be disappointing, furthering evidence suggesting the economy is slipping into a recession,” said Hampel. “If it is, Fed Funds will get to 2% fairly soon.”
