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Since the financial crisis in 2008, the interest rates and returns credit unions have been able to obtain through investing excess cash has been at historically low levels. While rates have been near zero, there has been little incentive for management to change their investment methods to increase yields on what has been considered to be “not worth the effort.” Investing in longer-dated maturities has also been viewed as “not worth locking up your liquidity for a few extra basis points.” Thus, many credit unions have maintained cash balances in excess of their actual forecasted and regulatory required needs and invested them in less-than-optimal strategies. Yet, the opportunity for yield improvement is huge, as U.S. credit unions have approximately $1.3 trillion in assets, $400 billion of which is in cash and investments.

Thanks to improved global economic markets, the Fed and global central banks have started to raise rates and signal their continued rise over time to more normalized conditions. In addition, new financial technology capabilities have been applied to disintermediate the FDIC-insured certificate of deposit market, which comprises a significant portion of credit union investments. Now is the time for savvy credit union managers to position their investment strategies to maintain capital preservation while achieving higher levels of yield and liquidity.

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