WASHINGTON (3/16/11)--Credit unions' rates remain a better deal for consumers than bank rates, Credit Union National Association (CUNA) Chief Economist Bill Hampel said in a letter to the editor of American Banker
, which was published Tuesday. Hampel's letter addressed what he called "mixed up" assertions from an earlier letter published on March 8 and that strove to say banks pay higher rates on savings. CUNA's letter made three points:
* Financial institutions match competitive offers on rates, but the earlier analysis "would require that banks offer better than posted rates significantly more frequently than credit unions do. That is doubtful," Hampel said. * The earlier letter compared the average cost of deposits at banks and credit unions, and said banks have a higher average cost--and therefore pay higher rates on consumer deposits. However, said Hampel, the analysis actually "excludes direct deposit accounts from the denominator for banks, boosting the average yield while leaving in the almost equivalent 'share drafts' for credit unions. Credit unions typically pay interest on share drafts, but at much lower rates than on other types of deposits." * The analysis is also "mixed up because of the very different mixes of credit union and bank deposits," said Hampel. "Credit union deposits are virtually all retail. Almost nonexistent on credit union balance sheets are large, negotiable certificates of deposit and brokered deposits, both of which tend to pay much higher rates than consumer deposits."
Thirty percent of bank assets are in banks with more than $10 billion in assets. "These larger institutions are most likely to rely on more expensive wholesale funding, driving up their average cost of deposits," Hampel wrote. "Only 5% of credit union assets in the group are in credit unions that size. So the average cost of credit union deposits represents rates paid to consumers while the average cost on bank deposits is driven by a mixture of consumer and wholesale rates." "Therefore, there is no reason to doubt the basic reality revealed by rate-tracking firms: credit union rates and fees are more consumer friendly than at banks," Hampel said. Hampel also noted that "over the recent financial crisis the National Credit Union Share Insurance Fund has fared much better than the Federal Deposit Insurance Corp. (FDIC). So far, credit union insurance premiums have been quite a bit lower than at banks, and over the next decade, even after the FDIC's latest assessment changes that favor small banks, insurance costs to credit unions and community banks will be similar to each other," he concluded.