You may recall the decision by the Board of Directors of St. Colman’s (Claremorris) Credit Union Limited which introduced a cap on savings of €55,000 per account, on the 8th November 2018.
St. Colman’s Credit Union has experienced further exponential savings growth in this current financial year. Following much further deliberation in this matter, your Board has taken the decision to reduce this savings cap from the present level of €55,000 per account, to €30,000 per account. The reduced savings cap will become effective from 1st July 2020.
Essentially this means no further savings can be taken from members who hold savings in excess of €30,000 after 1st July 2020. Members with less than the proposed savings cap can simply continue to save as normal.
Savings at this credit union and indeed across the wider credit union sector have been growing at a phenomenal rate and particularly since the economic recovery which commenced in 2014/2015. The recent and ongoing COVID-19 Pandemic in addition to the broad economic ‘lockdown’ has also given rise to a significant savings increase. With few business remaining open throughout the lockdown, there remained little for members to indulge in, with respect to discretionary spending.
The Regulatory cost of reserves which needs to be held against these savings in addition to the cost credit unions encounter when insuring member savings, are multiples of the income which can be earned from these surplus funds, given the super-low interest rate environment which currently persists.
The interest rate environment has also witnessed the phenomenon of negative deposit charging for Commercial entities, which your credit union is designated as, per EU legislation. Individual members on the other hand are designated as ‘Retail Investors’ and therefore will have access to superior deposit rates in comparison to the credit union.
As members may know, surplus funds held by the credit union which are not advanced to members by way of loan facility, have been traditionally invested in a range of conservative instruments (Deposit accounts, Senior Bank Bonds), as set out in credit union regulations. There is also, an almost complete absence of product in the marketplace, an inevitable consequence of many years of Quantitative easing by the European Central Bank.
Therefore, the credit union faces an almost impossible task attempting to ‘place’ these surplus funds and avoid negative charging, which is completely outside of our control. In addition and as the sector name implies, the business is a ‘credit’ union rather than a savings union, where surplus funds of savers are distributed to those seeking loan facilities, following our prudent underwriting procedures. The current position is that this credit union presently retains far more funding than it needs to cater for its loan facility demand.
The credit union is also giving serious consideration to returning savings to members for levels significantly in excess of the savings cap. We sincerely apologise to our members for any inconvenience caused and pledge to continually keep the matter under review. The costs associated with the ever increasing savings levels have the potential to undermine the very robust capital reserve levels held on the credit union’s balance sheet.
Therefore, this decision by the credit union’s board is a considered and prudent measure to enable the strong reserves position to be maintained for the overall benefit of almost 18,000 members.
Finally, we remind all members that savings to a maximum of €100,000 per person and per institution are fully protected by the Deposit Guarantee Scheme (DGS).