Some of you have written to me asking why Credit Union deposit rates have fallen over the past year. To understand interest rates, it’s important to consider the various factors which shape how rates are determined.
One of our objectives is to offer the best rate practicable. We believe members deserve no less. As a cooperative, LGFCU is owned by its members. There is no separate group of stockholders to whom LGFCU must cater. However, your Credit Union is affected by external factors which influence the dividends paid on deposits.
Getting through tough times
Recently, the lower deposit rates are a result of historically low rates in the economy. You may have noticed rates are lower across financial institutions. This is the consequence of larger economic policies focused on restarting the economy in a recession.
Last year, a pandemic brought the economy to its knees. Many businesses closed; some employees lost their jobs and sources of income. Industries that rely on tourism, travel and hospitality were especially disrupted. Perhaps you’ve felt these changes in your community.
When an economy stalls, businesses often lead the way back to full employment and more commerce. But businesses need help from consumers to rebuild sales. This support often comes in the form of lower loan rates which encourage consumers to borrow and buy goods.
Lower loan rates put pressure on financial institutions like your Credit Union to reduce deposit rates. This is because the income we need to pay deposit dividends mostly comes from loan interest income. We imagine lower deposit rates for savers can feel disappointing.
Some good news
There is a counterbalance to consider. If lower deposits rates are a symptom of lower loan rates, then other aspects of the economy may be more affordable. The cost of living doesn’t rise as much in a low-rate environment because businesses’ expenses are down. Lower business expenses often mean lower prices for goods. This saves all consumers money.
Rest assured the rates you receive on Credit Union deposits is the best calculated value we can offer. Taken together, your Credit Union membership provides value for borrowers and savers.