CU Tax Subsidy Going to Wealthy Savers

A Winston-Salem (NC) credit union's certificate of deposit promotion targets wealthy savers.

Allegacy Federal Credit Union is advertising in large bold font a seven-month certificate with an annual percentage yield (APY) of 1.15 percent for balances of $250,000 or more.

Buried in the fine print of the advertisement the credit union states that the seven-month certificate is a tiered rate account. The highest rate is only available for savers meeting the highest tier requirement. To get this favorable rate, funds must not come from an existing Allegacy account.

In addition, a minimum deposit of $1,000 is required to open this certificate. Unfortunately, a majority of Americans could not avail themselves of the lowest tiered requirement with an APY of 0.95 percent, because they don't have enough in savings to open the account.

While credit union industry's tax exemption is tied to its public policy mission to meet the financial needs of people of modest or small means, it appears that Allegacy is diverting its tax subsidy to wealthier savers.

This is another illustration that the credit union industry's tax exemption is poorly targeted and is going to people who don't need taxpayer subsidized savings products.

Below is the ad (click on image to enlarge).

NASA FCU's Surprising CD Disclosure

Bankaholic recently reported on a surprising disclosure related to NASA FCU's share certificate or certificate of deposit (CD) rates.

The disclosures stated the following regarding CD rates: “The rate will not change during the term of your certificate unless the Credit Union notifies you at least 30 calendar days prior to any rate decrease.” (emphasis added)

Here is a link to the certificate terms and conditions disclosures.

In other words, NASA FCU can lower the rate on an outstanding fixed-rate share certificate without the approval of the member as long as it provides such a notice.

This clause does not seem to be in the best interest of the member.

The blogger reminded consumers that they should "review this legally mandated summary of terms in advance of establishing an account with a new institution."

CU Member's Yearlong Bureaucratic Nightmare

The Tampa Bay Tribune is reporting on Mike Jordan's nearly yearlong bureaucratic nightmare with Achieva Credit Union and the National Credit Union Administration (NCUA).

The story concludes that his experience "changed his opinion of credit unions as nonprofits looking out for the little guy."

The issue dealt with an "ädd-on" certificate of deposit (CD) issued by Achieva Credit Union that advertised that money could be added onto the CD. When Mike Jordan tried to add money the second time to the CD, the credit union refused.

Mike Jordan filed a complaint with NCUA in July of last year and proceeded to get the regulatory run-around.

However, he kept pursuing the issue and finally received a letter from NCUA dated May 30 that stated Achieva's disclosures were "not clear and conspicuous — a violation of the Truth in Savings Act." The credit union was instructed to correct the defective notice and to work with Jordan to find an amicable solution.

But it was only when contacted by the newspaper did the credit union management state that Mike Jordan would be reimbursed for the lost interest income.

Read the story.

Study: Community Banks Marginally Outperform CUs on CD Rates

This may shock consumer reporters; but a study by GoBankingRates.com found that community banks are competitive with credit unions with respect to their rate offerings on CDs.

The study found that interest rates offered by community banks on CDs were marginally better than on comparable CD interest rates offered by credit unions.

The study looked at the interest rate being offered on a $10,000 CD with six-month, one-year and two-year maturities and found that community banks paid slightly higher rates on CDs with six-month and two-year maturities, while credit unions offered a slightly higher rate on the one-year CD.

So, this study supports the findings of an earlier study by the Tax Foundation that concluded that, on average, the credit union tax subsidy was not being passed through to savers.

Read the study.

MoneyWatch: No Valentine for CEFCU

Last month, I did a post on Citizens Equity First Credit Union (CEFCU) switching the early withdrawal penalty terms on its existing CDs. The story was first reported on DepositAccount.com.

Allan Roth of MoneyWatch dug deeper into this story and his February 14th commentary was not a love note to CEFCU. Roth ripped CEFCU over this practice, as well as Fort Knox FCU.

He wrote that the language allowing CEFCU to change the early withdrawal penalty for existing contracts was buried in section 14, page 22 of the 40 page deposit account agreement, which the credit union "knew few of their members would read and understand." Roth noted that inserting this language into the deposit account agreement made the terms of the CD a virtual etch-a-sketch for the credit union.

Read more of Allan Roth's commentary.

Citizens Equity First Increases Early Withdrawal Penalty

Citizens Equity First Credit Union of Peoria (IL) announced that it is increasing the early withdrawal penalty on existing CDs. The early withdrawal penalty on a 5-year CD would increase from 180 days of dividends to 365 days of dividends. The new early withdrawal penalty goes into effect on the March 15.

The story appears on depositaccounts.com blog.

Read more.