The Credit Union recently carried out a strategic review of our members’ savings position in view of our current operating environment. After much deliberation over the last few months, we have reluctantly taken the difficult decision to introduce a savings limit of €100,000 per member with effect from 31st October 2020. You will no doubt, be aware from media reports that other credit unions have had to take similar steps in the past year.
The background is that total savings in the Credit Union grew by over €11m this year and now stand at €333m. While this increase shows our members desire to save, coupled with their confidence in the Credit Union, it also means we have a growing amount of surplus funds which are not lent out and which must be invested. The Central Bank of Ireland requires that all credit unions maintain a regulatory reserve of a minimum of 10% of total assets. Increased savings has a knock-on effect on the Credit Union’s ability to maintain this regulatory reserve. This means that for every €10,000 in savings lodged, the Credit Union has to put €1,000 aside from the surplus into regulatory reserve. This has the effect of depleting the amount available to pay a dividend to our members and to invest in new services.
Also, members savings, which are not borrowed by other members, are invested in the financial markets to make a return.
However, at present, financial institutions are so well funded that most are now charging us to hold your savings. The effect of all this is that our income from investing your savings has dropped significantly in recent years – a matter that has been highlighted in our annual reports over the last few years.
The combination of the low-interest-rate environment, coupled with rising costs, limits our ability to propose dividends or invest in new products and services for members. By introducing a savings limit, we are attempting to maximise the surplus available for distribution to members and to invest in new products and services that will help support the sustainable growth of the Credit Union into the future.
We chose the €100,000 limit as this is the maximum amount of money per financial institution that is guaranteed under the Deposit Guarantee Scheme and we wanted to ensure that members continue to be eligible for this maximum benefit.
Any members that are affected by the new limit have been written out to and we will work closely with them over the next few weeks to ensure that the whole process is dealt with in an efficient and personal manner and to help them in any way we can.