Why are Credit Union Dividends are so low compared to bank interest rates?

Discussion in 'Credit Union issues' started by Pinchy, Jan 16, 2012.

  1. Pinchy

    Pinchy Frequent Poster

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    Can someone explain why Credit Union Dividends are so low compared to interest rates of the banks. Looking at my own CU, the results from financial report look good with a healthy surplus yet they plan not to pay any dividend for 2012.

    Can understand the accounts, but not how this could affect such a low interest dividend, historically 0.5%.

    P
     
  2. ClubMan

    ClubMan Frequent Poster

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    Maybe the warm fuzzy feeling of being a name rather than a number is worth an extra 2% to some people?
     
  3. Slim

    Slim Frequent Poster

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    CU shares are, in reality, demand deposit accounts. Credit Unions are not able to declare dividend rate until end of year and can only pay out of surplus, approved at AGM. Recently, most CUs have had to make large provisions for (a) bond write downs (b) bad debts and(c) trying to reach the 10% regulatory reserve. They also do not wish to attract deposits for deposits' sake, which puts further strain on reaching reserve level - CUs must provide at least 10% of a savings at last year end as a regulatory reserve. This has to come out of surplus.
     
  4. ajapale

    ajapale Moderator

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    This thread has been moved from the 2010 CU Divident thread.
     
  5. Pinchy

    Pinchy Frequent Poster

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    Thanks for the comments Slim and Clubman as ever.

    It is intersting as I will need to check the surplus listed in the report book we recieved.
    Last time I was in our CU I opened to an account for our daughter. They said we could only be gaurdians on the account and could only deposit money and not withdraw as the child would need to wait until they were 7 to access their money. I think this is crazy and worked out that if we saved 50 a month for 7 years the total with a bank account with 3% would be €9,480 (interest of €980.00)

    If we saved the same amout in the credit union over same period with interest rate of 0.5% €8515.00 (interest of €15.24 !! )

    It's just does not make sense to save (especially for a child) in the credit union and what the above demonstrates is - Imagine the damage after 7 years inflation ! :) May as well just throw €1000 out the window.

    I am still learning - but given the low / no! interest paid depending of Credit Union and the very high APR interest rate on loans compared to banks, a Credit Union account is basically an insurance policy in case you need to borrow small sums of money.

    Welcome views...

    P
     
  6. Pinchy

    Pinchy Frequent Poster

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    Sorry, that should of course be €154 not €15 interst but still very small value added.
     
  7. RichInSpirit

    RichInSpirit Frequent Poster

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    Dividend V Interest

    The banks aren't paying Dividends either.
    The reason Credit Unions aren't paying as high a dividend as they did before is that under the regulatory system they have to put a much larger amount of the surpluses into their reserves against bad debts.
     
  8. RichInSpirit

    RichInSpirit Frequent Poster

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    People moving their savings out of Credit Unions mightn't be a bad thing. They'll be less competition for dividend in future years.
     
  9. ClubMan

    ClubMan Frequent Poster

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    But they're paying better interest than interest and dividend rates on offer from most CUs.
     
  10. Slim

    Slim Frequent Poster

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    Have to agree. Bank for regular or fixed term saving/current account. CU for local access to cash and loans. You have to weigh up the sacrifice of interest for this.
     
  11. seantheman

    seantheman Frequent Poster

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    Still trying to get my head around the Credit Union setup before opening an a/c.
    So CU is good if you want to save a bit of pin money say €20 a week and may want access to a car loan of ,say €10k?
    The CU dividend is their way of paying interest,or is in addition to interest?
     
  12. STEINER

    STEINER Frequent Poster

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    generally if you begin saving regularly in a CU you will be able to get a loan when you apply for a loan. To get a loan of say 10k you probably need a few months at least of regular saving of a few k. I've had a few CU loans down the years, once you pay off your 1st CU loan with no problems its easier to get larger subsequent loans. You have the usual requirements to show them your payslips/P60 also to show you can repay, but you don't need to have a job to get a loan, just an income of whatever source in order to be able to repay.

    CU's have deposit accounts but most people just save in the form of shares getting an annual dividend, effectively the same as interest with DIRT deducted etc Quite a few CU's are paying zero or very low dividends now so banks are paying much better interest in comparison. I actually know someone who afraid of the banking uncertainty moved substantial bank savings into their CU, but the CU had a zero dividend last year and they obviously got zero return and no greater security as the bank savings are as equally guaranteed as the CU savings by the Gov.
     
  13. seantheman

    seantheman Frequent Poster

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    Deposit a/c's paying interest? or just share a/c's paying between 0%-2.5% dividend at present
     
  14. ClubMan

    ClubMan Frequent Poster

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    It's like a bank except that you usually have to have 25% of the amount you want to borrow on deposit rather than just borrowing 75% of that amount and using your savings for the balance. Also as a result of this policy the effective interest rate charged is often significantly higher than the quoted APR.
    And you usually get poor rates of return on deposits and on shares (but you'll only find out at the end of the year what you get on these), they are generally taxable like bank deposits and many CUs are also in financial trouble.

    But at least you're a name and not a number.
     
  15. RichInSpirit

    RichInSpirit Frequent Poster

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    Credit Unions were paying dividends of 3 and 4% when the banks were only paying barely over 1%.
    The banks are only paying the higher interest now because their source of cheap funding has dried up.
    I guess I'm more on the Credit Union side than the banks.
     
  16. Slim

    Slim Frequent Poster

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    Any credit union which has held an AGM has had that approved by the regulator or is not of concern to the regulator. So, even if they are paying only 0% dividend, they are probably in fair shape. Many credit unions, who cannot pay a dividend, cannot doing so because they are putting the surplus to reserves. They are still viable.
     
  17. yeatsanon45

    yeatsanon45 Guest

    Not with standing difficult times we are having at moment, in my view principal reason CUs are paying such low dividends is that they are carrying such large deposits/shares
     
  18. Pinchy

    Pinchy Frequent Poster

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    Rich in Spirit, I would love to know what CU's are paying up to 3%. The other postings surveying CU dividend rates are on average below 1%. Some paying none at all.

    P
     
  19. RichInSpirit

    RichInSpirit Frequent Poster

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    I wasn't talking about now, but in the past. Banks were giving less than 1% interest on deposits, while Credit Unions were paying 3 and 4% dividends. The banks need the deposits now so they have to pay bigger interest.