By Ray Birch
FRANKENMUTH, Mich.–Count Frankenmuth Credit Union here among those that have been paying close attention to the Federal Reserve’s movement on rates, including introducing a new product.
“We have been monitoring the actions of the Fed for months,” CEO Vickie Schmitzer told CUToday.info, which is featuring credit union reaction to the Fed’s decisions in a two-part series, of which this is the second part.
“We recently rolled out a new savings product to stay in line with the Fed’s activity,” Schmitzer said. “It is a 100% liquid, no-strings-attached account that pays monthly interest at an above-market rate. Members have been flocking to it in order to maximize their earnings. It already has rate hikes factored in so members can benefit immediately from higher earnings.”
Schmitzer added that the $471-million credit union will continue to monitor the impact of future Fed rate hikes and move rates upward as needed.
“Our certificate rates have also been competitive, with odd-term CDs offering top-of-market rates,” said Schmitzer. “We have new money only CDs as well as rollover offerings. Our plan is not to chase hot money that will move for rate, but rather offer options to our members that reward them for saving at ‘their’ credit union.”
No Hot Money Here
In Gardner, Mass., $471-million GFA FCU won’t be chasing hot money, either.
“We have been positioning our balance sheet for quite some time in anticipation of an eventual rate hike, although we do not expect the Fed movements to be steep or rapid,” said CEO Tina Sbrega.
Sbrega said that for the overall market, “obviously” adjustable rate loan products will immediately reprice with the latest rate increase. She does not expect the hike to have a significant impact on mortgage lending, which she expects will remain strong.
“We would expect a marginal rate increase in other consumer loans, and would anticipate that market sensitive deposit products, like money market accounts, will move upward, but again, only slightly,” said Sbrega. “Margins for financial institutions remain depressed and the cost of technology and compliance continue to rise. We must be mindful and sensitive when planning rate increases and we will not chase the competition to capture hot money.”
Scott Wilson
Emphasizing that it has been paying great rates in comparison to others throughout the rock-bottom rate environment to reward members for deeper relationships, $518-million SeaComm FCU, Massena, N.Y., has no plans to make any deposit rate hikes soon.
“We have currently been above market in our deposit rates as a way to reward our members in an ultra-low rate environment,” said CEO Scott Wilson. “We certainly evaluate our pricing strategy on a monthly basis, however, we will lag around six to nine months before any concrete decision will be made on a move upward.”
Rate Bumps
SeaComm has added rate bumps to its long-term certificates of up to 50 basis points on 30-, 36-, 48- and 60-month certificates for those who do a significant amount of business with the credit union, said Wilson.
“For example, if you have a checking, debit card, direct deposit, credit card and one additional loan product you could earn the full 50 basis points. We also allow increments of 10 basis points for each of the aforementioned relationships. The idea is to give our members the best rate, while they utilize all of our services. That said, on some of the those certificates we were paying more than 150% higher than average in our market. Even with the fact our costs of funds are above our peer average our margin has continued to hover at 3%.”
Looking at the Fed funds future forecasts, the current yield curve and what the market is suggesting, Wilson said it is clear there will be smaller, more frequent rate increases by the Fed.
“We fully understand the Fed will not overcorrect too quickly so that they won’t have to lower rates, which could have a huge impact on the overall confidence in the economy,” said Wilson. “We will be making smaller increases in rates—both on our deposits and loans—over the next few years. We too, don’t want to discourage borrowing by raising our lending rates too fast.”
Car loans will be inching up at $217-million Alcoa Tenn FCU, Alcoa, Tenn.
“There will be a rate increase on most consumer loan products,” said CEO David Proffitt. “Home equity lines of credit tied to the Fed funds rate will see an adjustments of 25 BPs. Variable rate mortgages will eventually adjust some but not immediately depending on the terms of the product the member bought. Car loans will see some adjustment higher over the next few weeks but that has not been determined yet. New fixed rate mortgages will see some adjustment too, but it’s still too early to make a decision.”
Proffitt said savings’ rates will be slow to adjust.
“However longer term certificates—two-three years—will see some increase due to the signals from the Fed that a couple more rate increases can be expected over the rest of the year,” added Proffitt.
In Charleston, W.Va., $217-million Pioneer West Virginia FCU is set to move on deposit rates.
“Our ALCO just met and we're tweaking rates upward on our regular share and money market accounts effective April 1,” explained CEO Dan McGowan. “We also have a variable rate credit card program which will also reset at the same time.
Hank Hubbard
We've structured the deposit side rates so that the additional interest expense will roughly be equal the additional interest income on the credit card portfolio. So, at least for the short term, the changes are going to be net income neutral.”
In Detroit, the rising rate environment affects CDCU One Detroit Credit Union a little differently that most lenders, asserts CEO Hank Hubbard.
“The vast majority of our members are not at all rate sensitive,” said Hubbard. “With a median savings balance of less than $500, whether we pay 0.1% or 1% is not going to influence their decision. $50 a year is not enough to entice a low income low asset person to tie up $500 for a year. That’s just over $4 a month more, which seems like nothing to them. It won’t matter to them, but it will matter to us, so we generally drag our feet on increasing savings rates.”
Members Not Rate Sensitive
The $35-million CU’s larger depositors are generally socially conscious investors in CDs, and are similarly insensitive to the rate as long as it is reasonable, said Hubbard.
“That gives us time to drag our feet on raising loan rates as well,” he said. “But again, our target members aren’t very rate sensitive on loans either. Nearly all have subprime credit scores, and our rates now easily beat their other options. We will continue to watch the market but are not interested in buying deposits and not particularly worried about losing hot money to the highest bidder.”
Last week’s rate hike won’t place much upward pressure on loan or savings rates the $785-million Michigan First CU in Lathrup Village, Mich.
“Being somewhat liquid, we don’t depend heavily on certificate money, so there is lower pressure to push rates up,” said CEO Michael Poulos. “It would probably take a couple of more rate hikes before we move anything here.”