WASHINGTON - While the Federal Reserve's latest increase saw the federal funds rate go up to 2.75%, credit unions aren't likely to raise deposit rates each time the Fed bumps up rates. According to Callahan & Associates, Inc., the rates that credit unions pay on their money market accounts certainly were not in step with the Fed's moves. Money market rates rose only 13 basis points to 1.20% as of December 2004. To add some context, some 52% of the 3,158 credit unions that offer MMAs did not raise rates during the fourth quarter. Surprisingly, 1,366 credit unions have not moved rates since June 2004. As of December 31, 2004, money market shares comprised 28.3% of total credit union shares, Callahan said. By not raising rates on money market shares, credit unions are keeping their cost of funds low, while at the same time raising rates on variable rate loan products. These actions, at least temporarily, can help a credit union's net interest margin dilemma, Callahan said. According to DataTrac, credit unions are still paying well above what banks are paying on money markets and that is to be expected, Callahan reported. The average money market rate is .75%, with credit unions exceeding the average by 34 basis points and banks trailing by nine.
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From the April-06, 2005 issue of Credit Union Times Magazine • Subscribe!
Credit Unions May Continue to Tread Slowly in Wake of Fed's Latest Increase
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