Nevada Federal Credit Union Paying Savers to Withdraw Money

Nevada Federal Credit Union is taking a different approach, paying its members to withdraw funds from their savings accounts. Why? The credit union has too much cash sitting on its balance sheet and is losing money on it. The Las Vegas Journal Review explains the situation:

"Starting Monday, the credit union has cut the variable interest rates on deposits held by members that only save money to zero.

"We're losing money, and they are not making money," Beal (CE) said.

So the credit union will pay these savers a $25 bonus for withdrawing amounts between $25,000 and $49,999. The bonus jumps to $50 for amounts up to $74,999 and goes to $75 for larger sums."

There are two things going on here. First, the credit union can't seem to find a place to invest its deposit money. Instead of making loans the credit union is putting the money into safe, but low-yielding Treasuries. The second is that insurance premiums are adding to the cost of holding deposit dollars.

"In addition, the credit union expects the National Credit Union Administration to boost deposit insurance premiums by 0.15 percent to 0.4 percent this year.

For each $100 million in deposits, that premium increase will increase Nevada Federal's costs up to $400,000 yearly, Beal said."

The bank is investing its cash in short-term Treasuries earning .25%. It's currently paying customers .4% and then another .15-.4% in insurance to the NCUA. That means it's losing a minimum of .30% on every savings dollar.

It's an interesting look into the finances of the bank. Still, I find it hard to believe they can't find any loan demand. Is investing in Treasuries really because of a lack of demand or because they don't want to risk making loans?

This is also interesting in light of debates we are having about inflation. One argument against future inflation is that credit unions are not lending, but are instead hoarding cash in Treasuries, etc. This certainly supports that case.

 

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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Comments

  • Drew

    March 09, 2010

    A credit union is NOT a bank. It is a member-owned financial cooperative. It succeeds of fails to the degree to which members participate in the credit union by having multiple accounts, including loans. Members of the credit union who have a deposit only relationship don't hurt all the other members, as they cost the cooperative money.

    As for loans, this credit union is based in Las Vegas where unemployment has skyrocketed and housing values have plummeted. Consumer confidence is at all-time lows. It's not surprising that people aren't borrowing.

    A credit union exists for the benefit of ALL its members; to that end, ALL its members must play their part.

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