'Mix Effect' Boosts Cost OfFunds

MADISON, Wis. - (12/15/04) -- Credit unions are seeing their costof funds rise even though they have yet to budge on the rates theypay on regular shares and share drafts since the Fed started hikingshort-term rates six months ago. That's because growing numbers ofmembers are shifting their mix of funds from low-paying regularshares to higher-yielding certificates, according to Steve Rick, aCUNA economist. The so-called mix effect is increasing creditunions' cost of funds even while they hold the line on regularshare and share draft rates. Since the Fed began raising the targetrate for overnight FedFunds on June 30, average rates paid bycredit unions on regular shares and share drafts have remainedalmost the same, 0.74% and 0.45%, respectively, according toDataTrac Corp. But rates paid on all CDs, from three months to fiveyears in maturity, have risen by an average of 30 bps to 46 bps,prompting a major shift into these products.