Interest rates are increasing for the first time in a long time. What can members - especially savers - expect from WSECU? Please know that WSECU will raise our savings rates to meet members' needs and in a prudent and responsible manner. Remember, our Board of Directors are credit union members like you who are looking out for your interests. We have planned for and are expecting to increase savings rates this year. However, it may not be at a pace which makes intuitive sense to members.
This is a great opportunity to discuss how movements in interest rates affect consumer behavior and prices for loans and savings. When rates are falling, what happens? In the mortgage loan market, for example, consumers move quickly to refinance their homes to take advantage of lower rates - which is great for borrowers. On the deposit side of a falling rate environment, financial institutions also move relatively quickly to lower rates paid to savers. Of course, savers who have invested in Certificate Accounts are not affected until their Certificate matures - so financial institutions continue to pay those higher rates to Certificate savers even though market rates have fallen.
However, when rates are rising, what happens? Borrowers do not refinance their loans - why would they? In the case of mortgage loans and other loan types, borrowers do their best to keep the lower rate loan in an environment in which new loan rates can be much higher than past loan rates. From the perspective of a financial institution, the cost of funds is rising, but the interest rate on all loans already "on the books" is rising much more slowly, impairing the ability of a financial institution to pay higher savings rates. Almost all financial institutions face this challenge, and that is the main reason savings rates rise more slowly than savers might expect when interest rates are going up.
Of course, this is a great simplification of a very complex issue. WSECU works hard to balance our assets and liabilities to insure we are insulated from any interest rate swings that might occur. We also must be aware of market conditions. If WSECU savings rates are significantly higher than the market, we will experience large savings inflows - beyond our capacity to use those funds productively - and that is not good for our long-term financial health.
Managing this new interest rate environment is really a question of balance. We must move carefully and deliberately to raise our rates in line with market conditions and in ways that make sense. We also search for ways to offer a better deal for members (as we have with longer-term Certificates these past few years) if we see opportunities.
As a cooperative, WSECU is structured to keep member interests in mind. Our Board, made up of members like you, is very mindful of this new rising rate environment. We are excited and look forward to being able to raise savings rates for members this year. We do have a responsibility to balance the long-term strength of WSECU with our goal returning value to members. We believe we've done a pretty good job over the past 60 years - we hope you think so as well.
Kevin Foster-Keddie, President/CEO