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Cost of funds is the king of retail banking acronyms. Yet, it only tells us half the story. Granted, without a sharp eye on COF, credit unions can expose themselves to devastating interest rate risk. As recent years have shown us, net interest margins can compress very quickly — and stay compressed much longer than anyone previously expected — revealing how little control we have over our mixed asset yield. Fortunately, we can still influence overall deposit cost and take back a large portion of our margin control.

COF falls incredibly short, though, when assessing the true cost for the core component of any member’s relationship with their credit union — their checking account. To illustrate, high-yield checking accounts average $5.90 in monthly interest expense, or a COF of 0.79%. But a more holistic measurement of those same accounts reveals they actually generate an average of $6.20 net profit. That’s nearly $75 in annual profit per account, before even considering the interest income generated by redeploying the deposits.

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