Rate's Effect On Deposits Unknown

MADISON, WIS. - That interest rates affect deposits is well known. But how interest rate changes affect deposits may be misunderstood by many credit unions, according to a new study from the Filene Research Institute.

"Market interest rates appear to have little effect on total credit union deposits," the authors found. "However, changes in interest rates are a significant determinant of the composition of deposits. For example, as market interest rates decrease, members shift to regular share and money market deposits, and as regular share, money market and share certificate rates increase, the shift is toward share certificates."

The study, "Deposit Growth in a Changing Interest Rate Environment: The Experience of Credit Unions from 1994-2006" examines how interest rates affected both the growth and the composition of CU liabilities over a 12-year timeframe.

The study was conducted by Steve Swidler of Auburn University and Christoph Hinkelmann of Nicholas-Applegate Capital Management.

The authors said they found that while the deposit behavior patterns are present for credit unions as a whole, they found significant differences between large and small credit unions in member responses to interest rate changes.

Copies of the study can be had by visiting wwwfilene.org.