Magazine article American Banker

Feedback: CUNA Disputes Rate Analysis

Magazine article American Banker

Feedback: CUNA Disputes Rate Analysis

Article excerpt

Byline: Bill Hampel

In a March 8 Viewpoint ["Credit Unions Face Tough Test"], Peter Duffy suggests that despite overwhelming evidence from rate-tracking services such as Datatrac, banks actually pay higher interest rates to depositors than credit unions do, and the reason is the higher deposit insurance costs credit unions incur. This analysis is quite misleading.

First, Mr. Duffy claims that stated or posted rates on loans and deposits are often not the rates actually agreed to, that depositors and borrowers can offer negotiate better terms. Financial institutions certainly do match competitive offers, but Mr. Duffy's analysis would require that banks offer better than posted rates significantly more frequently than credit unions do. That is doubtful.

Second, Mr. Duffy compares the average cost of deposits at banks and credit unions over the past 15 years and "finds" that the average cost at banks is higher than at credit unions, from which he infers that banks pay higher rates on consumer deposits. Actually, to reach this result, he excludes direct deposit accounts from the denominator for banks, boosting the average yield while leaving in the almost equivalent "share drafts" for credit unions. Credit unions typically pay interest on share drafts, but at much lower rates than on other types of deposits.

Third, Mr. Duffy's analysis is mixed up because of the very different mixes of credit union and bank deposits. Credit union deposits are virtually all retail. …

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