Patiently Waiting for a Rise in Rates

As tax refunds and member savings help create deposit growth in the first three months of the year, credit unions must decide how they are going to appropriate those funds. So far in 2004, much of the savings not utilized to fund various loans, has been kept as cash or cash equivalents by the credit union. The 564 credit unions participating in the First Look program grew cash and cash equivalents 21.4% in the first three months of this year, accounting for over 90% of the 5.7% three-month growth credit unions saw in investments (including cash and cash equivalents). These 564 credit unions represent approximately 30% of the industry with $181 billion in assets.

 
 

As tax refunds and member savings help create deposit growth in the first three months of the year, credit unions must decide how they are going to appropriate those funds. So far in 2004, much of the savings not utilized to fund various loans, has been kept as cash or cash equivalents by the credit union. The 564 credit unions participating in the First Look program grew cash and cash equivalents 21.4% in the first three months of this year, accounting for over 90% of the 5.7% three-month growth credit unions saw in investments (including cash and cash equivalents). These 564 credit unions represent approximately 30% of the industry with $181 billion in assets.

Increases in cash on deposit at corporate credit unions of $2.657 billion represented 93% of the $2.872 billion in cash increases from these credit unions. Cash on deposit at other financial institutions and cash equivalents increased $154.3 million and $284.6 million respectively. Cash on hand decreased $224.1 million.

By keeping funds in cash credit unions sacrifice some yield, but with a rise in rates seemingly imminent (I think we’ve heard this before), credit unions appear to be maintaining a liquid investment portfolio to get a potentially higher yield if rates rise in the near future. Yield on average investments for First Look participants was 2.35%, down 6 basis points from 2.41% in the previous quarter.

The graph below shows the distribution of investment increases in the first quarter.

 

 

 

May 10, 2004


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