Skip to main content

CUNA Mutual’s Chief Economist Steve Rick - What is Happening in the Savings Market?

MADISON, Wis.–A new analysis from CUNA Mutual’s chief economist is offering some insights into what is taking place in the savings market and driving consumer behavior.

Writing in CUNA Mutual’s newest Trends Report, Chief Economist Steve Rick noted the recent failure of Silicon Valley Bank was due to a liquidity crisis as depositors set off an old-fashioned bank run and withdrew their deposits. As a result, many small- and medium-sized regional banks have reported a loss of deposits, as some depositors have moved deposits to larger “too big to fail” banks.

CUNA Mutual Checking Chart

“Credit unions are not immune to this trend,” wrote Rick. “During the first two months of 2023, credit union checking balances declined 2.4%, regular share balances fell 1.1% and money market deposit account balances fell 3.8%. But offsetting this decline has been a surge in certificates of deposits, which rose 12.5%. This shift in the mix of credit union deposits from low-cost to high-cost deposit accounts has tripled credit union cost of funds, from 0.35% in the first quarter  of 2022 to 1.1% in the first quarter of 2023.”

The Driver

So, what is driving the drop in money accounts (i.e., checking, savings, MMDAs) and the rise in investment accounts (i.e., certificates of deposit), asked Rick.

“The famous 20th-century economist John Maynard Keynes theorized that the demand for money was a function of interest rates, income, and the price level,” he explained. “He stated that a rise in market interest rates should reduce the demand for checking balances. The interest rate on CDs and Treasury bills represents the opportunity cost of holding checking balances that typically pay little to no interest.”

Rick pointed to the chart below, which shows the negative relationship between credit union checking account growth and the Fed Funds interest rate.

Shift Occurring

“Whenever the Federal Reserve raises the Fed Funds interest rate by more than three percentage points, credit union checking account growth slows significantly as funds shift to CDs or move to money market mutual funds,” Rick stated. “This happened in 1994-1995, 2005-2006, and again today in 2022-2023. This trend will only intensify as the Federal Reserve continues to raise interest rates.”

Comments

Post a Comment

Please no profanity or political comments.

Popular posts from this blog

Open Banking To Hit $94B By 2029—But U.S. Lags Amid Global Surge

Watch our Video on Understanding Open Banking NEW YORK—By 2029, open banking is projected to surge globally to a staggering $94.14 billion in value. Yet despite its rapid evolution and expanding global footprint, adoption remains uneven—hindered by inconsistent regulatory frameworks across countries. According to GlobalData, this disparity poses a key challenge for the sector’s success, with the U.S. notably trailing behind global peers in embracing open banking. The U.K. pioneered open banking and continues to be one of the leaders globally. The country has seen the number of users increasing, with there being 12.09 million active users of open banking in 2024 and 223.9 million payments made. This is an increase of 72% compared to the year before. “As open banking continues to flourish, it is positive to see that the Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR) have outlined how open banking can expand further in the U.K., and also be used in variable...
Post a Comment
Read Complete Article HERE>»

Sunday Reading - What is the Declaration of Independence?

What is the Declaration of Independence ? The Declaration of Independence is the founding document that formally announced the American colonies' break from British rule. It laid the philosophical and moral foundation for American democracy, asserting that individuals possess inherent rights and that governments must be accountable to the people ( read summary here ). Although Thomas Jefferson is often remembered as the sole author ( read initial draft ), extensive collaboration shaped the Declaration. Benjamin Franklin and John Adams made small but impactful revisions— including Franklin’s reported suggestion  to change “We hold these truths to be sacred and undeniable” to “self-evident”—before submitting the draft to Congress. On July 4, 1776, the final text was adopted and sent to printer John Dunlap, who produced an estimated 200 broadsides that night—but that wasn’t the actual day of American independence . Congress had voted for independence two days earlier, ...
Post a Comment
Read Complete Article HERE>»

Why Avoiding "I" in Marketing Presentations Matters

  Grant Sheehan, CCUE | CCUP | CEO NCOFCU  You know how things just stick with you? Well, many years ago, my marketing professor started off his class with the following, and it has never left me.  The Power of Perspective: Why Avoiding "I" in Marketing Presentations Matters In the world of marketing, effective communication is paramount. One valuable piece of advice that often comes from experienced instructors and industry veterans is the importance of avoiding the use of the word “I” in presentations and reports. At first glance, this may seem counterintuitive; after all, many individuals feel that personal anecdotes and experiences can enhance a message. However, upon deeper reflection, the reasoning behind this approach reveals itself as essential for achieving impactful communication. Building Objectivity When marketing professionals present their findings or insights, it’s important to establish credibility. Utilizing data, surveys, and feedback from cu...
Post a Comment
Read Complete Article HERE>»

👨‍👩‍👧‍👦 You Need to Prepare Now to Compete for New Fed Gov’t Funded Savings Accounts for Children

WASHINGTON–Credit unions, which often talk about the need for younger members, will now have the opportunity to compete in a new arena for the youngest members of all, as the recently passed reconciliation bill includes language creating and funding for a new savings account for children, with a one-time deposit of $1,000 from the federal government for those born in 2025 through 2028. The new accounts are expected to create a new battleground of competition for credit unions as every provider from banks to fintechs to others seeks to capture the accounts.  The final version of the bill makes the tax-free savings accounts for minors, called Trump accounts, a form of individual retirement account (IRA) under Sec. 408(a), according to the Journal of Accountancy. Under the legislation, the accounts will be IRAs (but not Roth IRAs) for the exclusive benefit of individuals under 18.  About the Contributions “Contributions can only be made in calendar years before the beneficia...
Post a Comment
Read Complete Article HERE>»

Agencies Issue Exemption Order To Customer Identification Program (CIP) Requirements

WASHINGTON--The Federal Deposit Insurance Corporation, the Office of Comptroller of the Currency, and NCUA, with the concurrence of the Financial Crimes Enforcement Network, issued an order Friday granting an exemption from a requirement of the Customer Identification Program (CIP) Rule implementing Section 326 of the USA PATRIOT Act. The CIP Rule requires a bank or credit union to obtain taxpayer identification number (TIN) information from its customer before opening an account, and the exemption permits a bank or credit union to use an alternative collection method to obtain TIN information from a third-party rather than from the customer, the agencies stated in a joint release. The order applies to accounts at all entities supervised by the agencies. "Since the CIP Rule was issued initially in 2003, there has been a significant evolution in the ways consumers access financial services, along with a rise in reported customer reluctance to provide their full TIN due, in part, to...
Post a Comment
Read Complete Article HERE>»