WASHINGTON-Average rates paid by credit unions on all savings deposits continue to fall to record lows through the first six weeks of the year.
DataTrac, which follows rates on 8,000 depositories, including 1,000 credit unions, reported yesterday that the average paid by credit unions on regular shares fell to what is believed to be an all-time low of just 0.39%; while interest-paying checking fell to a meager 0.28%; for money market accounts to an anemic 0.71% and for one-year CDs to only 1.35%.
Experts attribute the historically low rates to continuing pressure on the bottom lines for credit unions, created, in part, by the Federal Reserve's efforts to keep rates low. "Blame the Fed for that," Bill Hampel, chief economist for CUNA, said yesterday. Beside, the overall recession is continuing to put downward pressure on interest rate, according to Hampel.
But even with historically low rates, credit unions continue to pay better than banks, noted Hampel. "They've been lowering their deposit rates, but less than banks," he asserted.
In comparison, banks were paying an average of just 0.28% for regular savings accounts; a meager 0.21% for interest-bearing checking; 0.45% for money market accounts and 1.05% for one-year CDs, according to DataTrac.
According to DataTrac, the average paid by credit unions on regular share/savings accounts breached the 1% mark for the first time ever in 2003 and has hovered until the end of 2008 from when it has declined precipitously.
CUNA's year-end data showed that credit union loans grew by just 0.1% in December and by only 1% for all of 2009, while savings rose by 0.6% in December and by 10.6% for the year. "This is a classic recession," said Hampel, explaining the so-called flight to quality of savers to federally insured credit union and bank accounts.
Though savings growth was very low, down from a 6.9% increase in 2008, Hampel was optimistic about certain areas, including member business loans and credit card loans, where credit unions showed strong growth. He said many credit unions are entering business lending markets to fill the void of banks, some of which are exiting those markets. In addition, he said impending changes to credit card laws will make credit union cards more attractive to many consumers, providing "a big opportunity for credit unions." "Credit cards have long been a big opportunity for credit unions," said Hampel.
The capital ratio for credit unions declined to just below 10% at year-end 2009, from 10.8% in 2008, due to two trends, a fall in net income and the big growth in shares. Through the year delinquencies rose to a 20-year high of 1.84%, from 1.37 at year-end 2008.
