Paying More and Strengthening the Credit Union

Credit unions are not safe and sound, growing, vibrant, dependable and helpful institutions because the federal government insures their deposits, or because the federal government helps run a regulatory agency, or because credit unions do not speculate in certain financial instruments. They are all the above good things because members are disciplined savers and disciplined borrowers. Credit unions are sound because members pay back loans consistently and regularly.

 
 

We are presently in a “flight to quality” environment. Money is coming in, away from the scary stock market and equity mutual funds.

But what do you suppose “quality” means to members? They might say “not volatile like stocks and mutual funds;” they might say “insured.”

In fact, it means more than both of these. For one, it means something that may shock them, that they wouldn’t readily believe, although as credit union members they should, it being our duty to keep reminding them. “Quality” when referred to in the credit union context means the members themselves.

Credit unions are not safe and sound, growing, vibrant, dependable and helpful institutions because the federal government insures their deposits, or because the federal government helps run a regulatory agency, or because credit unions do not speculate in certain financial instruments. They are all the above good things because members are disciplined savers and disciplined borrowers. Credit unions are sound because members pay back loans consistently and regularly. And those members accept a savings rate that is slightly lower than the rates at which they borrow, allowing funds to run the credit union. This relationship between credit union and members needs to be stressed over and over. Never let your members feel that a credit union is a bank. Credit unions are a community of members. Their strength is in themselves.

Paying More than We Have To

Accordingly, now would be an excellent time to demonstrate the credit union relationship. The present “flight to quality” environment, that is, removing money from volatile instruments and depositing them in credit unions, is readily understandable. Stocks stink — at least at credit unions, principal is not going to decline.

We have the opportunity at the moment to accept deposits and to pay very little back in the form of dividends. Banks, you will note, are paying exceptionally little on savings. Rates are low, and banks are taking every advantage to hold wide their spread between lending rates and savings rates.

But people are hurting, especially people who have to depend on income from savings to live on. They have seen that income decline significantly.

I propose paying not what we can get away with on savings but more than we need to. And telling members so. Telling them that in these troubled times we are stretching, in order to help them. Because we are one side of a relationship that is grounded in helpfulness. And because likely in the environment we have today, credit unions are somewhat better off than the collective body of members.

Some time ago, rates began to fall. Credit unions lowered the rates they paid on savings, but did not work as hard lowering borrowing rates. In addition, they had high-producing loans in their portfolios. The result was a kind of windfall for credit unions.
Now is the time to give some back. We will not act as banks; we will do more than is expected of us.

Stress the Relationship

But at the same time, we should be sure that members get the message that they are partners in this effort. It is they that make the credit union strong.

We should be telling them that we will be with them in the long run if they will be with us in the long run. There is room for creative thinking here. We might offer even higher rates to members who bring their mortgages over to the credit union, or offer a five-year CD With a rate bonus higher than the norm if they bring in their five-year car loan.

It is all too tempting to try all sorts of marketing and publicity. What we really need to do is keep telling members that we can help them only to the extent that they can help us, that quality loans result in quality rates on savings.

This environment of very low rates and of moving money out of stocks and into insured products is a temptation to pay only the bare minimum. It is also an opportunity to both put needed money into the pockets of members and also to reinforce the notion of the credit union relationship. The credit union is members, and is only as good as members. The one will help the other, and the other has to understand how that help is supplied.

When both sides understand the relationship, both the credit union and the members benefit.

 

 

 

Jan. 6, 2003


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