Leading America Back to Saving

Credit unions are currently experiencing a boom in share growth. The result is an increase of $50 - 60 billion in investments in the first quarter of 2003 alone, according to the latest estimates from corporate system inflows. This dramatic increase, compared with $33.4 billion in investment growth for the entire year in 2002, can be primarily attributed to three factors:
  • Slow loan growth
  • An increase in mortgage and other loan prepayments
  • Traditional consumer savings inflows following end of year expenditures.

 
 

Credit unions are currently experiencing a boom in share growth. The result is an increase of $50 - 60 billion in investments in the first quarter of 2003 alone, according to the latest estimates from corporate system inflows. This dramatic increase, compared with $33.4 billion in investment growth for the entire year in 2002, can be primarily attributed to three factors:

  • Slow loan growth
  • An increase in mortgage and other loan prepayments
  • Traditional consumer savings inflows following end of year expenditures.

Beyond these factors, we believe there is an underlying change in consumer behavior that makes these fund flows different than credit unions' past experiences with ''seasonal liquidity.'' There is a continuing shift in Americans' financial attitudes and habits - away from the stock market hype of the 90s and into a more balanced savings approach. The third consecutive year of double digit declines for the S&P 500 and continued uncertainty have led consumers to reposition their portfolios in more traditional savings vehicles.

The Untapped Opportunity
This new environment is a fertile opportunity for credit unions to regain a leadership role in the household savings sector. According to the Federal Reserve, household savings between 1980 and 2000 were shifted into the stock and bond markets. Savings in traditional vehicles dropped from 31.0% to 16.3% during that time. In 2001, the trend began reversing itself with traditional savings vehicles increasing from 16.3% to 19.3% of household assets. Many credit unions are seeing share inflows, but few have actively embraced the increasing liquidity as an opportunity to capture market share.

Rebalancing Savings in Credit Union Products
A ''turning point'' - similar to the shift away from the stock market - is also possible for credit unions to recapture assets that were moved into money market mutual funds when regulation prevented many financial institutions from paying market rates. In 1980, money market mutual funds represented 4.4% of household savings. This sector grew to 21.8% by the end of 2001. During this same period, credit union shares grew from 4.4% to 8.6%. Today, many credit unions can provide better value to their members through on balance sheet money market accounts. Competitive rates and a wider array of financial services make credit unions an ideal place for consumers to rebalance their portfolios.

High Liquidity Is Not a New Trend
But what can credit unions do with all of this liquidity? Increasing loan volume is ideal, but not always possible. Therefore, the selection of the right investment alternatives is critical. The same type of share flow increases we are experiencing today were also at work in 1987 when a group of 20 credit unions met to discuss solutions for the liquidity build-up they were all experiencing. These leading credit unions formed The Callahan Credit Union Financial Services Limited Partnership (CUFSLP) with the objective of creating credit union owned and directed investment alternatives for the entire credit union community. The CUSO partnered with the 100-year old Goldman, Sachs & Co. for money management. The Trust for Credit Unions was born.

As many credit unions reach their approved limits with other financial institutions, the Trust provides an important diversification option. Email Sharon Simpson to receive the most recent rate history and a list of CUFSLP Partner Credit Unions.

 

 

 

April 7, 2003


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