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Tuesday, January 25, 2011

How Stable is YOUR Bank or Credit Union?

Did your bank or credit union suddenly start charging for things they used to provide free? Did the dividends and interest rates on your savings , Certificates of deposit (CD's) and IRA Certificates go from sizzle to drizzle? Has the offered interest rates on car and other loans rocketed while those other rates have dumped? If so, could your institution could be headed for the dumper as well?

We all know that banks are greedy. Same as credit card companies, which in the end, are usually banks. But credit unions? Those who operate on the premise to serve members? To reinvest that money to keep interest rates low on loans, and interest rates high on your savings? Well, I'd start to wonder about that when there are huge spreads in those rates among various institutions, and nobody can, or perhaps is unwilling, to explain why.

Example: I did much business with a local credit union including banking online. Then I was informed they were going to charge for banking online, the only service I actually used. The cost would exceed that of writing checks and sticking stamps every month. They explained they couldn't subsidize the costs of free online banking any longer, and had to charge the customers. Around the same time, their interest rates on savings and certificates plummeted, and interest rates on loans started climbing. The National Credit Union Administration (NCUA) which is the credit union equivalent to the banking industries FDIC had down rated the credit union from "well capitalized" in December 2008 to "adequately capitalized" in September 2009, a sign to me of potential problems. Maybe not failure now, but any downgrade is important where money is concerned. Especially with all the banks, and to a much lesser extent, credit union, failures these past several years.

Another credit union that remains "well capitalized" sponsors big dollar local events. How that affects their pocketbook, I don't know, but they too started dropping their savings and certificate rates precipitously, while loan rates started edging higher. All those big screen monitors on the walls of the branches and fancy offices, along with television commercials and sponsorship of professional sports spectaculars must cost a bundle. And that money isn't going into the member's savings accounts for sure.

To look up how your credit union is doing, check the National Credit Union Administration website at http://ncua/gov Then click on "Find a Credit Union by State" or "Advanced Search" in the upper right and go from there. If you find your credit union by State, copy the name and then go back to "Advanced Search" since you'll need to do that to get more information. When you get your credit union, click on "Call Reports" and then a date, and when that page come up, click to view the block showing "PCA Net Worth Calculation Worksheet." Lines 13 through 16 should give you some idea of changes in the overall financial health of your institution, and how it compares with others in your state and local area, or around the country should you choose to look. Go back and look at different quarters and years, to see whether it's doing better or worse than in the past.

Some institutions have "Moderately Undercapitalized and Significantly Undercapitalized" captions, so who knows where they are heading?

Just a final thought. Three credit unions within less than a ten mile radius:

A: New car loan: 1.99% for 6 years
4 Year CD with $20,000 deposit pays 2.40% annual interest.

B. New car loan: 2.99% for 5 years, 3.99% for 6 years
4 Year CD with $20,000 deposit pays 1.80% annual interest.

C: New car loan: 3.99% for 5.5 years
4 Year CD with $20,000 deposit pays 1.06% annual interest.

Big disparity... and the reasons why may lie in the wellness of the institutions? Only time will tell. Here's some interesting reading:

http://bankimplode.com/blog/category/credit-union-failures/
http://blogs.reuters.com/felix-salmon/2010/09/24/when-credit-unions-fail/
http://www.fdic.gov/bank/individual/failed/banklist.html

More very interesting reading...the UNOFFICIAL problem bank list by Calculated Risk for Dcember 2010: http://www.forextv.com/forex-news-story/forex-unofficial-problem-bank-list-increases-to-949-institutions

Bottom line is that it's your money. If you aren't looking after it, don't expect someone else to do it for you. You know, those guys in the nice offices who never seem to come out on the bottom? Them. They're looking out for Number One and you aren't even on the list!

2 comments:

Alice said...

Informative!Thanks for the information which will definitely help from being in number one on the list of those guys in nice offices.

florin said...

Very good post , allthough i don't agree with you totaly, the main ideea is my belive too. Respect!