LAS VEGAS – With rates near all-time lows and costs still rising, it has become so difficult for credit unions to earn a positive spread for its members that Nevada FCU is paying members to take their money elsewhere.
"There’s virtually no loan demand right now, given the local economy; short-term investments are paying as low as 0.10% to just 0.25%; and we’ve been told to prepare for an NCUA assessment of anywhere from 15 to 40 basis points – it’s a negative spread," declared Brad Beal, president of the $820 million credit union.
"It’s a whole different deal," Beal told Credit Union Journal yesterday. "Never in my life have I seen anything like it. Net yields are in the negative."
Some area credit unions and banks are trying to shrink their balance sheets in similar ways to rebuild their capital ratios, but even with a $32-million loss last year, Nevada Fed still has strong capital/net worth of 8.9%. So that’s not a motive, said Beal.
Because the negative yields have drawn dividend rates on regular shares, share drafts and money market funds to 0%, Nevada Fed has decided to pay those members who have no other relationship with the credit union but a deposit – those that cost more than they pay – to withdraw their funds. "That’s where we’re losing money," said Beal, of the 1,600 members who have as much as $100 million on deposits and no other relationship with his credit union.
Nevada Fed is offering those members a modest payment to withdraw their deposits – $25 for $25,000 to $50,000; $50 for $50,000 to $75,000; and, $75 for more than $75,000 – and will help them place those funds in another federally insured depository for free. Early withdrawal penalties for CDs are being waived.
The promotion has succeeded so far in getting members to withdraw a "couple of million dollars" in the last couple of days, according to Beal.
Beal said he is not too concerned about losing members in the long run, noting that most have expressed gratitude for steering them somewhere they may earn a yield above 0%.
