Nevada Federal Credit Union Paying Savers to Withdraw Money

Nevada Federal Credit Union is taking a different approach, paying its members to withdraw funds from their savings accounts. Why? The credit union has too much cash sitting on its balance sheet and is losing money on it. The Las Vegas Journal Review explains the situation:

"Starting Monday, the credit union has cut the variable interest rates on deposits held by members that only save money to zero.

"We're losing money, and they are not making money," Beal (CE) said.

So the credit union will pay these savers a $25 bonus for withdrawing amounts between $25,000 and $49,999. The bonus jumps to $50 for amounts up to $74,999 and goes to $75 for larger sums."

There are two things going on here. First, the credit union can't seem to find a place to invest its deposit money. Instead of making loans the credit union is putting the money into safe, but low-yielding Treasuries. The second is that insurance premiums are adding to the cost of holding deposit dollars.

"In addition, the credit union expects the National Credit Union Administration to boost deposit insurance premiums by 0.15 percent to 0.4 percent this year.

For each $100 million in deposits, that premium increase will increase Nevada Federal's costs up to $400,000 yearly, Beal said."

The bank is investing its cash in short-term Treasuries earning .25%. It's currently paying customers .4% and then another .15-.4% in insurance to the NCUA. That means it's losing a minimum of .30% on every savings dollar.

It's an interesting look into the finances of the bank. Still, I find it hard to believe they can't find any loan demand. Is investing in Treasuries really because of a lack of demand or because they don't want to risk making loans?

This is also interesting in light of debates we are having about inflation. One argument against future inflation is that credit unions are not lending, but are instead hoarding cash in Treasuries, etc. This certainly supports that case.