Credit Unions Must Focus On Treasury Rates to Avoid Liquidity Crunch In 2025

By Ray Birch

LAKE FOREST, Ill.—Credit unions seeking to avoid a liquidity crunch this year must pay attention to one key fact: deposit rates are now a function of Treasury rates.

To protect and gain deposits, CUs must price deposit services with high rates to match government rates, explained Michael Moebs, economist and chair of Moebs $ervices (see graph showing average T-bond rates are all over 4%.)

“The U.S Treasury is a competitor you can no longer avoid,” Moebs said. “Rates for transaction accounts, like interest checking and savings, need to be markedly higher for 20% of consumers who hold 80% of the balances for these services.”

In March 2023, the Federal Reserve, not the FDIC, bailed out Silicon Valley Bank, guaranteeing all deposits with 90% exceeding the maximum FDIC insurance limits, Moebs pointed out.

“Deposit insurance established in June 1933 was forever transformed. Sure, deposit insurance still exists, but is viewed by consumers and small businesses to have a new partner with Treasury,” said Moebs. “Deposit rates are no longer just a backstop but a way to make money, thus avoiding savers’ view of Wall Street as East Las Vegas. T-bond rates now mean the depositor can rely on the federal government to protect funds and provide good returns. T-bonds have market yields just like Wall Street with no risk.”

Will depositories’ rates match Treasury?

“Yes and no,” said Moebs. “Minimally, deposit rates will rise. Rates, balances, and even fees are the answer. For example, a saver with $10,000 can leave $500 in savings and move $9,500 to T-bill rates for three months for 4.34%. This rate is greater than the national 1.78% three-month CD. Another example, if an investor has $50,000 in interest checking, many FIs are paying money market deposit rates of 1.98%, or half fed funds (4.33%).”

Moebs pointed out the six-month CD leads the way in almost matching the T-rate (see chart).

“First, find which deposit services have the most dollar balances. Then match these deposit rates as closely as possible to the T-rates,” said Moebs. “Deposit services with less balances, the rate match can be less. Remember the 20-80 ratio rules for daily balances—20% of the depositors have 80% of the balances. These users better be getting much more than 0.03%—the national average for interest checking.”

Rate effectiveness comes from efficiency, insisted Moebs.

“Overall, less non-interest expense means higher deposit rates plus net income,” Moebs said. “A critical efficiency statistic is assets per full-time Employee. The minimum benchmark is $10 million assets per employee. The key to deposit pricing dominance is efficiency: low costs equal higher rates.”