Credit Unions - who holds their cash?

Quick question.

Where is Irish Credit Union money invested? In the Big 4 banks, in funds, government bonds, a spread of these and more, or what? Are their deposits ringfenced? Are they government-guaranteed?

A number of us must have a share of exposure to deposits in the local Credit Union? Just wondering. Don’t wish to panic the horses.

Davy Stockbrokers should have a good idea where a lot of it is invested.

:laughing: :laughing:

To answer seriously, you’ve answered your own question, each CU operates a mix of investments, the reference to Davys refers to a case whereby a CU took Davys to court for supposedly selling a derivative type fund to them which turned out to be junk on the basis that it was the wrong type of risk for a CU… :angry:

Thanks for the clarification.
I need to pay more attention to the yearly accounts…

Italia '90 would never have happened if it weren’t for the Credit Unions.

There was no such thing as GE money back then and no bank would look at you if you didn’t have a good job and steady income.

Given the unique contribution of the Irish League of Credit Unions to Ireland’s culture and the spawning of Ireland’s “feel-good factor”, I think they should be afforded membership of the Deposit Protection Scheme.

My Davys comment wasn’t meant to be smart-assed. As far as I know Davy has a lot of the ILCU business sewn up. Although this may have changed somewhat since the perpetual bond issue.

Just because stockbrokers are involved doesn’t mean that the products they’re selling are very risky. Credit Unions are always on the lookout for excess returns above risk-free. They may not invest in things like reverse convertibles, but they will invest in structured notes where the return is partially linked to equities, or the interest rate curve (see the Constant Maturity Swap debacle).

from a Sunday Times article at the weekend titled “Credit Union savers face dividend cuts”…

Davys is telling the credit unions that they have lost money on the fund it manages? Surely that should be Davys have lost the credit union’s money for them? Or do even big clients get the ‘managed’ fund brush off - “we don’t actually manage it, we sit and watch it make losses”!

Credit unions only pay 1% pa on deposits and charge 10% on their [unsecured] loans.

Why they need to look for excess returns above risk free is beyond me. They have a 9% spread, and there is a further ~5% risk free available to them on deposited funds.

Looks like they are going to lose a holy fortune this year in their quest for ‘excess returns’.

There is no standard for what credit unions pay on deposits or charge on loans. What credit union has paid 1% on deposits?

Going back to the op, credit unions have to ‘bank’ with a financial institution with clearing capabilities. For community credit unions, they will select the local bank whether it be AIB, Ulster Bank, BOI etc. Excess funds that are not given out as loans are invested. Davy’s had a lot of this business wrapped up with a very tight relationship with a lot of credit unions. Some larger credit unions invest in more independent advice.

Where the credit union’s money ends up also has a lot to do with the investment skills that the staff and board of directors have.

I like the way you dispute my figures without providing any of your own. I forgot to say that the 1% is gross (before DIRT) so the net return is 0.8%.

Is it not an annual dividend at the discretion of the Credit Union in question, that’s how my local one works as far as I know and why I’ve never bothered, alongside the fact you need to leave a significant sum on deposit to get a loan, etc. I just didn’t have the cash in those days! :blush:

Exactly, it is the credit union disbursing the ‘profits’ from the year to the members and deposit takers. In the two credit unions that I am a member of I received 2.5% and 3.5% last year. It also gets more complicated in that up to about 20k you hold shares in the credit union and beyond that it is on deposit. The credit union may choose to reward the funds in shares and deposits differently as is voted on at the AGM.

One fundamental difference between the banks and the credit unions is that it is not until after you have had your money in the credit union that they will be able to tell you what return that you will receive.

I did not think that any credit unions had got as bad as paying 1%.

You are rolling the dividend into the interest rate paid to get your overall return. The dividend is entirely discretionary and will be slashed at many institutions this year, IMO, as loan losses rise and as their investments go sour. Then you will only be getting a low overall return (interst rate plus some low dividend).


Most credit union AGMs are held in October / November. I have no doubt that it is entirely possible that a credit union or some credit unions may give a return of 1% or less. I am still at a complete loss as to where your fact comes from that ‘Credit unions only pay 1% pa on deposits’

Credit unions are fundamentally different from banks. Credit unions do much better in times of economic crisis than they do in boom times. Credit unions do well when people need to borrow to pay for a new washing machine or to pay for Christmas. Less of the money ends up in Davy’s and more lent out at rates of 6-12.5% giving a much better return. The fact that the majority of credit union money is lent in the local community or is deduction at source from salary keeps bad debt quite low.

There are still lots of changes that need to be made by credit unions for the benefit of the members and I think it is time for consolidation of credit unions.

From AAM

€20k earned 2% and €50k earned 1.6% (gross). The one I am familiar with only paid 1% last year and might pay nothing this year due to huge losses on bad investments of CU deposits.

So returns appear to be in 1-2% range. Inflation is 5% and you can get 5% on demand with Northern Rock Ireland featuring a 100% deposit guarantee backed by the British government.

Any amount of money on deposit that is earning less than the rate of inflation is being eroded in real terms.

Even at 2%, investing €100 in a credit union will see you with the purchasing power of €97 in a year’s time.

Slightly off-topic but…

As I understand it, one of the features of the government’s recent decision to change the desposit protection scheme was to extend the new 100k limit to credit union accounts as well as bank accounts. (Correct me if I’m woring but that’s what I picked up from the news reports).

Where does this leave the (in)famous Savings Protection Scheme that the League were restricting to their members (and were in dispute with non-member CUs about it)?

I’m also surprised that the extension of deposit protection to credit union accounts hasn’t attracted more press comment.

Beware Mr. Lenihans ego may be writing cheques his body can’t cash. I understand why he said this on Saturday as a calming measure (FWIW, I would also have done exactly the same thing in his shoes), otherwise we would have had multiple bank runs yesterday all over the country.

Credit unions are definately not where the banking problem is in this country, the risks to their buiness model have not changed in this crisis, save an increase in unemployment meaning increased bad debts or debts taking longer to be paid. However, I’m not sure how their holdings are ringfenced in the event of a failure of one of the main banks such as AIB or BoI (many credit unions use their facilities), and I think this is the issue that credit union directors may want to address in their forthcoming AGMs.

And just to keep all credit union issues under the same topic header, I feel that in the medium term, they will be a significant beneficiary of the current turmoil in the banking system. They are perceived as safe, easy to use, local, well-capitalised, and so on, and with increasing self-regulation of spending/saving, whether through choice or compulsion, I forecast a reversion to the known.

In fact, a Co-Operative Bank would probably do well in the current climate.

Pushing this thought to its logical conclusion, we might see micro-banking on the Indian model extrapolated to the West.