Cash When You Don’t Need It

Low interest rates and higher yielding agency securities that are maturing are leaving credit unions with surplus cash.


When the Federal Reserve shared its plans to keep the fed funds rate at zero to 0.25% until mid-2013, it left credit union investment managers with a difficult task. What should they do with all of the cash? Not only are consumers still making deposits and feeling skittish about borrowing, now investment portfolios are creating a re-investment challenge.

Agency securities that are maturing, experiencing prepayments, or having call options exercised are reducing credit unions’ investment income during an already challenging time.

Source: Bloomberg

So what’s an investment manager to do? There is no one right answer, but one appraoch is to consider all of your investment options and take a fresh look at duration and the use of stable duration products. If consumers remain concerned about the economy and continue to increase their insured deposits, those “liquid” savings accounts could end up sticking around for longer than you would normally anticipate.

The example below is based on an actual credit union’s current dilemma. Should they settle for a reduction in annual income or take on more risk to try to compensate for at least a portion of the income that's rolling off?

Cash Flow

Source: Bloomberg

Either way, the credit union will take a hit to its annual income as it reinvests the cash from higher yielding securities in today’s market. However, if lengthening duration is acceptable they will be able to reduce that negative impact.

Another Option To Consider

One option that is often overlooked is using products with actively managed durations as part of your credit union’s overall portfolio. Investment products like the Trust for Credit Unions Portfolios are “open-ended,” which means they have no maturity date. Shares can be purchased or redeemed at any time based on the credit union’s needs. This can help you avoid the challenge of getting cash back when you don’t need it.

Options like these exist to help credit unions manage their investment portfolios through a wide variety of interest rate environments and investment landscapes. They can be used as part of an overall balance sheet strategy or as a supplemental component, complementing other types of investments. Certain types of institutional mutual funds, such as money market portfolios, can help diversify credit unions’ traditional overnight investment options as well.

Want To Learn More?

The Trust for Credit Unions provides ongoing education about the economy and institutional mutual fund investment options through online resources, live webinars and more. A recorded version of TCU’s Fixed Income University series is available for On-Demand viewing.

The Trust for Credit Unions mutual fund family was created specifically for credit unions and offers three portfolio options to match credit unions’ various balance sheet objectives. Contact us today to learn more or visit

The Trust for Credit Unions (TCU) is a family of institutional mutual funds offered exclusively to credit unions. Callahan Financial Services is a wholly owned subsidiary of Callahan & Associate and is the distributor of the TCU mutual funds. Goldman Sachs Asset Management is the advisor of the TCU mutual funds. To obtain a prospectus which contains detailed fund information including investment policies, risk considerations, charges and expenses, call Callahan Financial Services, Inc. at 800-CFS-5678. Please read the prospectus carefully before investing or sending money. Units of the Trust portfolios are not endorsed by, insured by, obligations of, or otherwise supported by the U.S. Government, the NCUSIF, the NCUA or any other governmental agency. An investment in the portfolios involves risk including possible loss of principal.



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