offer better CD yields
Investors who like to keep some of their fixed-income
money in certificates of deposit have been frustrated by months
of steadily declining interest rates.
Many Bankrate.com readers have laddered
CD portfolios and are reluctant to reinvest proceeds from a
matured CD at such low rates.
Perhaps it's time to look at the returns being offered
by credit unions.
Monthly surveys conducted by Bankrate.com show credit
unions consistently offering higher interest than banks and thrifts
on CDs, often better by more than a half-percent.
In the latest survey, six-month credit union CDs had
a national average yield of 1.71 percent compared with 1.26 percent
at thrifts and 0.95 percent at banks. The yield on one-year CDs
showed similar discrepancies with credit unions offering 2.02 percent
vs. 1.48 at thrifts and 1.07 at banks.
The main reason for the wide difference is credit unions are
cooperative institutions, says Jay Johnson, executive vice president
at Callahan & Associates, a Washington, D.C., credit union research
and consulting firm.
"All the earnings are returned to the members
in the form of higher savings rates or lower loan rates or goes
back into the institution. They're not looking to earn a profit
to pay to outside shareholders. Banks have to return profits to
Tom Dorety, chief executive officer at Suncoast Schools
Credit Union in Tampa, Fla., says being nonprofit makes it cheaper
to run the business.
"We have a distinct advantage, our expense ratios
are far lower than [a bank's]. We're returning money to our members,
People have been noticing that credit unions offer
better rates. Membership increased 2.0 percent nationwide last year
and savings deposits increased 10.8 percent, reported the National
Credit Union Association.
To find the latest high rates for certificates of
deposit, go to Bankrate's
"A lot of the growth in deposits is a reaction
to the volatility in the stock market. Most of it comes from current
members, but people have been looking for better rates and the credit
unions have been the beneficiary of that," says Johnson. "By
the end of last year, there was a 24 percent increase in money market
deposits. The key is converting that into longer-term deposits."
It's not just credit unions that have seen millions
of dollars flow into their money market coffers. Banks and thrifts
are participating in the boom also as people try to preserve principal
by dumping stocks and mutual funds.
But even in lowly money market accounts, credit unions
reward savers with a much higher return. Bankrate.com's most recent
survey shows credit unions paying a national average of 1.31 percent,
while thrifts offer 0.85 percent, and banks trail the pack with
a paltry 0.21 percent.
Despite their success, credit unions, the David of the financial
industry, are still no threat to the banking Goliaths.
"All of the assets of all of the 8,000 credit
unions in the U.S. don't equal the assets of Citicorp," says
But that doesn't stop credit unions from thinking
fast and exploiting opportunities that might encourage you to say
adios to your bank and howdy to the local credit union.
"We deploy specialized savings products in rapid
order," Waite says. "After Sept. 11, when we knew there'd
be a lot of nervousness, we launched a freedom account which offered
a very attractive rate for about 90 days to allow members to deposit
with us and give them time to figure out what their immediate and
long-term goals would be."
PATELCO also offers a high-rate 90-day CD for people
to stash their tax refund. Members stuffed $225 million into those
CDs last year, according to Waite, and almost all of it remains
with the credit union today.
"We try to come through with exceptional values
on a periodic basis and we've added a lot of members through those
If you don't belong to a credit union, it's easier
than ever to join one. More and more credit unions are going to
a community membership as opposed to being tied to a specific company,
industry or union.
"Originally, we were formed to service Pacific
Telephone employees," says Waite. "Now, we offer membership
to employees and family members of about 2,000 companies. We also
have an expansive community membership. Anyone who lives, works
or worships in over 40 communities in northern California can join.
Basically, if you walk past our front door, you can join."
Bankrate has plenty of information if you're interested
out more about credit unions, how
to join one or how
to start one.