Latest Fed Rate Cut Sends CU Rates Into Uncharted Territory
The Federal Reserve continued to exert enough downward pressure on interest rates last week that credit unions'
The Fed's Open Market Committee voted to slash short-term rates by another 25 basis points, cutting the overnight Fed Funds rate
The Fed's action was expected to be just enough to push the benchmark credit union rate, the average dividend paid on regular
"Nobody wants to drop rates below 1%, but they really don't have much choice," said Brian Turner, senior advisor for Southwest
Since January 2001 when the Fed enacted the first of 13 short-term rate cuts credit unions' rates have steadily declined. Data
Bank rates have fallen even further, to just 0.62% for regular savings; 0.43% for checking accounts; and 0.69% for money market
The latest Fed action is going to pressure credit unions in several ways to cut their rates even further, according to Turner.
First, because CUs still have as much as $40 billion tied up in short-term funds, most of it in the overnight market, credit unions
"Definately," said CUNA Mutual Group economist David Colby, of the likelihood of the 1% mark. "Credit unions have to
While loan rates are also expected to follow the Fed lower, it's deposit rates that will move quicker, he said. "Deposit rates reprice
Brian McVeigh, chief financial officer for State Employees CU, Lansing, Mich., said his credit union has already pierced the 1%
He predicted the Fed's action last week will pressure other credit unions to pierce the new rate threshold. "If it doesn't, I'd like to
The additional rate pressure will make it more difficult, but not impossible, for credit unions to maintain ROA. Turner suggested
"They'll want to hold as much mortgage paper as possible," said Colby. "They'll want to hold on to 6% or 6.5% mortgages. This
The record-low rates have yet to drive off depositors, as credit unions continue to report massive inflows of new savings, But,