Credit unions hit with negative
CREDIT unions are being charged negative interest rates ranging from 0.55pc to 1.1pc to keep cash on deposit at banks.
The cost to credit unions of depositing spare funds has emerged after it was revealed that Bank of Ireland plans to impose negative interest rates on money it holds as part of pension funds.
The bank is to charge pension funds 0.65pc for cash its holds on deposit for the schemes from September.
Credit unions are forced under regulatory rules to put much of their spare funds into bank accounts, but they are now being charged negative interest rates by most banks for doing this.
This situation has forced credit unions to restrict the amounts of money they will take on deposit from members as they are getting vastly more in deposits than they can loan out.
It also restricts the annual dividend, or return, that can be paid to credit union savers
Demand for loans from credit unions has been weak for years, but savings levels keep rising.
Credit unions in the Republic currently hold €13.75bn in members’ savings, with €4.46bn out in loans , according to the Irish League of Credit Unions.
On July 1 Ulster Bank began charging negative interest rates on savings over €1m held by business customers, credit unions and other institutional clients, saying the bank is passing on a cost it in turn is charged to keep money with the European Central Bank.
The bank is charging credit unions minus 0.55pc for funds held in excess of €1m.
Credit unions now limit deposits as the negative rates at banks bite
But other banks charge credit unions more.
Bank of Ireland and AIB are charging negative interest rates to all credit unions, ranging from minus 0.65pc to minus 1.1pc.
Permanent TSB is the only bank that does not currently charge negative interest rates.
The league said that in recent years a large number of credit unions have been forced to introduce savings or share caps to manage the inflow of savings.
This combined with a poor investment environment has had a negative impact on their balance sheets, the league said.
These savings caps range from €20,000 up to €50,000 depending on the size of the credit union.
More credit unions are looking at a monthly savings cap as they feel that this gives them more control and helps stop the once-off large lodgements, a spokesperson for the league said.
He added that in recent weeks some credit unions have reduced the amount of their savings cap as people begin to spend and borrow again coming out of lockdown.
“In particular we are seeing an increase in the amount of home improvement loans and garden improvement loans being taken out,” the spokesperson said.
There are now fears banks will start charging negative interest on retail deposits in banks, otherwise known as savings.
Policy director with the Consumers’ Association Dermott Jewell said any move by banks to charge households for deposits would be a “slap in the face” for taxpayers who had bailed out the banks during the financial crisis.