BAXTER, Minn. - Concern over financial institution stability has prompted Mid Minnesota FCU to introduce the "Safety and Soundness CD," a 13-month offering that paid 3.75% APY at press time and had attracted $300,000 in its first two days.
"We're saying that when times are tough and you are uncertain about what's going on with the economy, come to us, we are in good shape, we're safe and we're going to take care of your money," explained MMFCU's VP of Administration and CFO Pam Finch, who said the credit union also needs to add liquidity. "And we are willing to throw a little higher interest rate out there to prove to you we are fine."
According to Finch, the $5,000-minimum CD offers the best local market rate and also addresses concerns about keeping money short, automatically maturing half of the balance after seven months. If members choose not to withdraw the cash, the money automatically rolls over into a six-month CD at the prevailing rate.
"We have a lot of members coming in and saying I don't know if I should go 12 months or six months," shared Finch, who noted the certificate carries no maximum deposit limit. "A lot of times we are putting them into six-month money. This way we could keep it longer."
An increase in members asking about Mid-Minnesota FCU's deposit insurance, along with some members pulling money out of CDs and stuffing it into safe deposit boxes, alerted the credit union that members were getting overly concerned about the security of their deposits.
"We have had elderly members who've been through the depression put their money in safe deposit boxes," Finch said. "We've had other members come in and ask that if we go down how long will it take to get their money."
Newspaper ads promote the CD and offer education, specifically addressing the issue of deposit insurance provided by the National Credit Union Share Insurance Fund.
To help offset the high CD rate, the $195-million MMFCU bumped up its auto loans 20 basis points (5.29% for A paper) and home equity rates 30 basis points (5.65% for A paper). "Those loan rate increases are not going to offset the CD rate completely," Finch said. "Fortunately we are in a position where we have adequate net worth and capital. We are at 79 basis points for ROA. That's pretty nice right now."
Other factors prompting the CD's development, Finch said, are a tightening of overnight funds at corporates and the CU's 115% loan-to-share ratio.(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com/ http://www.sourcemedia.com/
