# How Safe Are Credit Union Deposits?



## Mebs

I have 5 or 6 grand lying in an account in my local credit union. I know I should shop around for a better rate, etc., but my main concern is deposit safety.

Are deposits in credit unions safe in the current climate? If not, and you would recommend I withdraw it, where should I move the money to? Thanks.


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## Palerider

It depends on if your credit union is a member of the Irish league of credit unions or is going it alone, also depends on how strong their financial accounts are, it is a personal view but a better rate and increased security is possible by moving, check out the best buys thread, it is your decision whether to invest your funds in an institution covered by the Irish State guarantee up to the first 100k or another non Irish institution.


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## Plumbob

I have a similar worry myself, I've 10k in a local credit union and am worried about deposit safety. At least the banks have a guarantee (for what it's worth) but how safe are the CU's?


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## pudds

Plumbob said:


> I have a similar worry myself, I've 10k in a local credit union and am worried about deposit safety. At least the banks have a guarantee (for what it's worth) but how safe are the CU's?



Credit Union deposits are covered  up to €100k also.


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## Lightning

Mebs said:


> I have 5 or 6 grand lying in an account in my local credit union. I know I should shop around for a better rate, etc., but my main concern is deposit safety.
> 
> Are deposits in credit unions safe in the current climate? If not, and you would recommend I withdraw it, where should I move the money to? Thanks.



Should you shop around? yes. There are much better deals out there than low or zero rates in credit unions. 

As per a recent Irish Times article, there are solvency issues in many credit unions. 

If you move your money out of the CU you gain greater safety and a better rate. Have you considered Nationwide UK?


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## Mebs

Thank you all for your replies. Yes the credit union is a member of the Irish League of Credit Unions and has large deposits of cash but I do know that there has been a few repayment defaults of late, like most institutions.

I had considered moving it to Rabobank but having to do it all online, etc. is putting me off. Ciaran, have Nationwide UK any branches in the Republic?


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## alpine

Their Office is at 3 Spenser Dock, North Wall Quay. 

As far as I recall, they will open a branch on Merrion Row in the next few weeks (near Department of Finance new offices!).


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## Lightning

Yeah, spot on. So, one branch for the moment (unlike Rabo they will talk to you face to face in their HQ in Spenser Dock) and one on the way.


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## ontour

One thought is that most credit unions have their AGM in the coming weeks and apply dividends after that.  It may be the case that the dividend is zero or it may be 2-3%.  You may lose that if you withdraw your shares before the AGM date or date of application of dividends.

Out of interest I must check if dividends are applied to accounts that closed during the year or only to accounts that are open at the end of the year?


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## Lightning

Most will be zero or very close to zero.


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## ontour

True, but some will be 2-3% so it is worth checking before closing an account, it costs nothing to ask.  I am in line for 2% if approved at an AGM so there are credit unions that are not in a mess.


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## Seabhac Ait

I believe that most credit unions will pay a dividend this year. Nobody can say authoritatively at this stage, as few, if any Credit Unions have held their AGMs - to suggest otherwise is nothing more than speculation. All savings in Credit Unions, up to €100,000, are covered by the Deposit Guarantee Scheme. In addition, 400 of the Republic's 411 credit unions are covered by the I.L.C.U. Savings Protection Stabilization Scheme, which intervenes if a credit union experiences trading difficulties. This scheme is owned and funded by the Credit Unions, and acts as an additional protection. The Financial Regulator, through the Registrar of Credit Unions, has been engaged in a very rigorous and ongoing regulatory inspection regime for the past 12 months in particular, and credit unions have been ramping up Provisions against possible future loan defaults. If the banking system had been subjected to the same level of scrutiny that Mr. Logue (former Registrar) and his successor Mr. O'Brien (current Registrar) has visited on Credit Unions since 2005, the banking sector would not be in the mess it is in.  Credit Unions have been prioritizing reserves and provisions over dividends, resulting from this "tough love". To date, two years into the financial crisis, not a single credit union has required a cent of tax-payer money, something the journalistic community have neglected to point out. Sure, credit unions are feeling the pain that their members are feeling, but this isn't the first recession they have lived through, and I suspect it won't be the last.


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## Seabhac Ait

The Credit Union financial year commences on 1 October annually and ends on 30 September of the following year. Dividend is calculated, based upon daily funds held. Thus, if savings are held in an account for part of the year, dividend will be calculated proportionate to the balances held and the duration for which they are held, similar to how deposit interest is calculated in an on-demand bank deposit account.


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## kaplan

*Credit union loan losses bite home*

@seabhac - you sure the balance is not averaged in a month with some or caculated the lowest balance in the month with others? What happens if an account is closed during the year? 

And don't forget the favorable tax treatment of credit unions which means their entire reserve base has been accumulated from a tax subsidy provided by the state.

Last I read ILCU's scheme was already committed to the tune of €45m with more calls to come. Seems 15 are [broken link removed]so that leaves €

Yup you are right about the regulatory inspection that forced credit unions to make [broken link removed]and found that they were on average 40% underprovided. 

Have a gander at this headline from the Indo on increase in provisions to €20m


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## oldtimer

Well I received the relevant reports etc and notice of AGM from my credit union this morning. Seems quite strong to me - also well run. They are recommending a 2.5% dividend. I'm quite happy with it.


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## askU

as safe as houses!


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## kaplan

@Oltimer - you get the other 418 sets of accounts as well? One swallow doth not a summer make. Care to name your credit union?


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## lightswitch

Is it possible to get information as to the health of an individual Credit Union?  I refer in particular to the one I joined last Summer.  Do I just ask at the Counter or put a call into the ILCU?

cheers, LS.


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## kaplan

No point in asking ILCU. Although you could try asking if it is or will be providing support to your credit union from its SPS bail out fund. If it says yes ask how much and let us know. ILCU applies the mushroom principle to credit union performance data.

Get a copy of your credit union's accounts for last year and this year (if available) and then it's over to you. 

You have no way of determining or comparing performance between your credit union and others as that info is not provided by either the Central Bank or ILCU. Aggregated financial perfomance data by credit union size and type would be very useful- thing is both bodies could publish this type of info but won't. So much for transparency eh?


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## Slim

Mebs said:


> ..... but I do know that there has been a few repayment defaults of late, like most institutions.


 
Can you be specific here? Do you mean loan defaults? I so, yes it is an industry wide problem.

What happens if CU cheques are not paid by AIB or BOI  or whoever?

Slim


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## SlugBreath

I keep a thousand or two in my local Credit Union savings account. I called in today and asked to withdraw €600 and I was asked did I want a loan of this money?  I am not sure if they are desperate to provide loans and are pushing them or what?


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## ontour

SlugBreath said:


> I keep a thousand or two in my local Credit Union savings account. I called in today and asked to withdraw €600 and I was asked did I want a loan of this money?  I am not sure if they are desperate to provide loans and are pushing them or what?



They make money by you taking out a loan, they make nothing by you removing savings.  On the upside it is probably a novel experience to be offered a loan in the ' current economic climate' !!


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## Paddyman

I'm a member of my local Credit Union. Naturally I'm worried about the safety of my shares/savings.
I  remove my few bob then I'll lose the life insurance on savings. (Savings before the age of 55 are doubled). It wouldn't be much but would it would be a help to my lady wife in the event of my death.
It's a tough call. Any suggestions?


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## Slim

Paddyman said:


> I'm a member of my local Credit Union. Naturally I'm worried about the safety of my shares/savings.
> I remove my few bob then I'll lose the life insurance on savings. (Savings before the age of 55 are doubled). It wouldn't be much but would it would be a help to my lady wife in the event of my death.
> It's a tough call. Any suggestions?


 
Hi Paddyman - that insurance is usualy limited to a doubling of savings up to a max of€13k (i.e. €6,500 x 2). all your savings in CU are state guaranteed up to €100k. Stop worrying. Slim


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## farmerette

deposits are 100% safe everywhere now , its the one and only upside to this bailout


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## WaterWater

Got the end of year accounts from our local Credit Union today that stated they are paying a 0% dividend for last year. Nice one to tell us this at the end of the year.


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## Slim

WaterWater said:


> Got the end of year accounts from our local Credit Union today that stated they are paying a 0% dividend for last year. Nice one to tell us this at the end of the year.


 
Credit Unions can only decide and declare their proposal to pay a particular dividend at year end and it has to be approved by the AGM.


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## The_Banker

I'm a member of two Credit Unions. One declared .5% dividend and other 0%..

Gutted :-(


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## Crugers

Slim said:


> Credit Unions can only decide and declare their proposal to pay a particular dividend at year end and it has to be approved by the AGM.


And these days, it seems, prior approval of the Registrar of Credit Unions too!


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## Lightning

The_Banker said:


> I'm a member of two Credit Unions. One declared .5% dividend and other 0%..
> 
> Gutted :-(



A familiar story. Are you pulling your deposits so you get a better return elsewhere?


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## Mebs

Slim said:


> Can you be specific here? Do you mean loan defaults? I so, yes it is an industry wide problem.
> 
> What happens if CU cheques are not paid by AIB or BOI or whoever?
> 
> Slim


 
Sorry for not replying, Slim, and for not making myself clear.

Yes, I mean loan defaults. Probably a bigger issue for a local credit union than a bank etc.


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## IsleOfMan

My Credit Union spent €25k on debt collection costs to get back €38k. They are also paying a 0% dividend and have doubled their provision for bad debts. Because of their poor lending practices the depositors have to suffer.  I would imagine that a lot of people will do as I did and reduce their account balance to that of a petty cash status account.


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## The_Banker

CiaranT said:


> A familiar story. Are you pulling your deposits so you get a better return elsewhere?



Yes, will pull a large percentage out of both.


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## Lightning

Good to see that some people are moving their deposits due to the awful returns on their own money at the CU.


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## kaplan

*Wexford Credit Union unable to pay a dividend*

Wexford Credit Union (assets c€154m) cannot pay a dividend due to investment losses on Anglo Irish Bank subordinated bonds and bad debt provisions. see ITimes and [broken link removed]


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## ontour

CiaranT said:


> Good to see that some people are moving their deposits due to the awful returns on their own money at the CU.



There are credit unions paying 2-2.5% which I would not consider an 'awful' return.

If we discussed banks operating in Ireland generically there would be many that would be quick to point out the differences.  Like credit unions there are many banks I would not keep a lot of my savings in but I do not suggest that people move their deposits out of banks.  I would understand the media putting all the credit unions in the same bucket as they never let the facts get in the way of a good story but I have higher expectations of AAM. 

The truth is that everyone should look at all of their deposits and have their savings diversified in a manner that reduces the risk, maximises the return and maximises the service.  The mix of risk, return and service is an individual choice.


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## Welfarite

I think people misunderstand the premise of CU ethos. This is a hangover frofm the Celtic Tiger days when we were all trying to egt best retuns on deposits. I have been a member of two CUs since the 1980s when nobody would touch me for a loan. I saved a few shares with the purpsoe of borrowing a few bob on the strength of them to get through Xmas and the like. I borrowed to get kids through college. I never looked at dividends. i was grately that they gave me loans when I needed them.
Now, and the CU's policies have helped create this image, CUs are seen as the same as any other financial institution. They are the 'poor relation' with regard to savinsg returns etc but my view is that they wer never meant to be anything but a union of people that helped each other with credit based on the monies deposited locally. 
to look at them as being places to save and withdraw at a whim is not my way of looking at it.


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## Tintagel

CiaranT said:


> Good to see that some people are moving their deposits due to the awful returns on their own money at the CU.


 
I have reduced my balances down to a few hundred from a few thousand. I will still keep a presence there as I can get handy parking outside the door, there is never a queue and I can get cash there easily enough. They have had my money for a year and now announce a nil dividend.


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## rossie2010

ECB is currently paying 1%, in the normal course of things this is the benckmark.

Anyone paying below it is inline with the markets and probably lower risk.

Anyone paying above 1% is paying a risk premium.  They have some extra risk attached, whether loan losses risk, investment losses risk or small reserves risk.


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## Slim

rossie2010 said:


> ECB is currently paying 1%, in the normal course of things this is the benckmark.
> 
> Anyone paying below it is inline with the markets and probably lower risk.
> 
> Anyone paying above 1% is paying a risk premium. They have some extra risk attached, whether loan losses risk, investment losses risk or small reserves risk.


 
Rossie - that is NOT how credit unions calculate their dividend. They take surplus of income overexpenditure, less contribution to Statutory and other reserves, including bad debts, and then decide how much of what's left may be distributed to members as dividend. It is not set at year start to attract funds. Slim


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## rossie2010

Slim said:


> Rossie - that is NOT how credit unions calculate their dividend. They take surplus of income overexpenditure, less contribution to Statutory and other reserves, including bad debts, and then decide how much of what's left may be distributed to members as dividend. It is not set at year start to attract funds. Slim


 
Yes, its not how they calculate their dividend/interest rebate, however, it is good to compare to a KNOWN benchmark.


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## kaplan

Isn't that just the problem Slim. Irish credit unions are the only ones of modern credit unions that still insist on declaring dividends from profits. Which means that savings are still regarded as a form of capital. This thinking and behaviour went out with the wireless and black and white TV in other countries where credit unions no longer rely on the share account.

Instead almost all of their funds are retail deposits paying interest rates. In the US credit unions treat dividends as a form of interest payment paying it many times a year. 

Think of the nonsense of saying to someone, I want you to lend me your money and depending on how well I use it and whether or not I make a profit on it, I might pay you something at the end of the year. Better still consider interest rebates - I will charge you more than I should on your loan and if I make a profit I might give you some interest back.

@rossie2010 your point is well made. Share accounts are similar to 60 day notice accounts and depoist accounts with credit unions (which amount to less than 10% of total savings) are 21 day notice accounts under law. Where attached to loan withdrawals under certain limits tied to the loan cannot legally be allowed. Some credit unions have argued their dividend is a good as if not better than bank demand deposit rates and some have even said that they at least pay a dividend on shares unlike the banks! On a risk adjusted basis and product features credit union rates should be at least 3.5% if not higher to compensate for undivsersified and sectoral risks. Thing is if credit unions paid interest they would quickly become insolvent - hence the silver lining in the dividend which allows zero rates to be paid when no profits are made.

On a genaral note the law is by not means clear as to how shares should be dealt with under liquidation - they would appear to rank after deposits even if covered under the DGS. It's a grey area and one that has not been tested in court yet.


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## ontour

kaplan said:


> Irish credit unions are the only ones of modern credit unions that still insist on declaring dividends from profits.



Not true, there are credit unions in the US and other parts of the world that pay dividends. Many don't but Ireland is not alone.



kaplan said:


> Better still consider interest rebates - I will charge you more than I should on your loan and if I make a profit I might give you some interest back.



You prefer the bank that makes the profit and doesn't give it back to the customer but instead spends it on management bonus', golf balls and other luxuries. I do not understand you contention that they are charging more interest than they 'should'.  How are you determining the interest they should charge?

Dividends and rebates are a part of collective financial experience that is usually community based.  Choice is important, the ethos and operation of credit unions will appeal to some while online interest maximising deposit accounts will appeal to others.  Diversity is good.


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## Padraigb

kaplan said:


> ... Thing is if credit unions paid interest they would quickly become insolvent - hence the silver lining in the dividend which allows zero rates to be paid when no profits are made....



You say that as if it were a bad thing. It's a very good thing. I would rather receive a low or zero return on my savings than have my CU driven into insolvency. And I don't want my CU put under pressure to make risky loans in an effort to fund a rate of interest that it is obliged to pay.


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## kaplan

*credit union dividends slide to zero*

@ontour : suggest you check up on the US basis for dividend payments which are treated like interest payments. Other countries you allude to are largely developing nations with less sophisticated credit union models and financial service sectors. But you may have a good correlate with the Irish system in mind. Have a look at one of the Candadian provincial credit union laws for the treatment of share accounts. You'll also note the sophistication in regulation.

WOCCU's [broken link removed]is for 70-80% interest bearing deposits and 20% share capital - which are share accounts in the legal sense here in Ireland

@padraigB ; the problem is there isn't enough fuel in the tank to pay a decent rate of return to savers and cover losses, fund operating costs and regulatory reserves required at current post-boom business volumes and costs. Even before the bust most credit unions were running at far too low reserves, preferring to compete with each other to generate the highest dividends - perversely maximising short term shareholder value, while ignoring the dire need to address costs through investing in modern processes and technologies while clinging to a redundant business model. Bad debts were seriously underprovided for - 70% were over the outer delinquency levels in 2005 with neglible write offs - many manipulating provisions to maintain dividends. Many breached legal lending and savings limits and invested in products they did not understand such as perpetual bonds, equities and subordinated loan stock.

Something had to give - first the dividend rate, then what's now happening is a shrinkage in balance sheets as both savings and loans decline. Result is losses that can only be financed from reserves = long term solvency problems. Cutting costs is a zero sum game unless large scale rationalisation occurs to achieve credit union scale and scope - which is what the central bank has in mind. At the same time new safe loans have to pick up along with other sources of income. Another real problem is the bail out distortion in the savings market means credit unions cannot compete on rate which is seeing a lot of attrition as people shift savings to banks. Funny thing is banks once complained to the EU about credit unions distorting the market with their non-dirt ordinary share status - these accounts still make up 70% of total savings balances. Still they shouldn't complain as they are the net beneficiaries of collection cost free billions in credit union savers funds placed on deposit with them by credit unions at retail not wholesale rates. Imagine you are paid a zero dividend rate and the bank down the street gets the use of your money paying your credit union top rates - but you don't get the rate? What sense is there in that model? Credit unions are acting as a cheap source of retail funding for Irish banks and paying their savers near zero or zero dividend rates while banks use the money to shore up their loans to deposit ratios. So much of the mobilsation of household savings. €7bn of savings tied up in Irish banks compliments of credit unions of which €3.5bn should be made available as affordable loans. 

Even funnier credit unions are only supposed to place money on deposit with Irish or EEA authorised banks having a long term rating of[broken link removed]What's Bank of Ireland, AIB, IPTSB, EBS, INBS & Anglo's rating today? 

I note that you have conveniently skirted the elephant in the room - the legal definition of share accounts as form of member capital/equity implicit within the Irish credit union act. It's why some credit unions continue to show member shares under "members resources" on their balance sheets instead of liabilities. Anyone care to discuss the legal ranking of shares v deposits in a liquidation?


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## ontour

Kaplan,

You are taking a technical analysis of the back office operations of credit unions as the only basis for evaluating whether credit unions should exist or not.  There is no argument that there are significant structural and regulatory problems with the credit union system in Ireland.  Your questions about liquidations and the treatment of shares is a valid concern.

There are US credit unions that pay dividends on share accounts based on a retrospective view of performance.  I am not sure what you meant by their 'treatment'.

Cutting costs is not a zero sum game.  There are individual credit unions in Ireland with far more staff than the like of Nationwide UK have running their operations here.  Credit Unions in Ireland became generous with their staffing levels and pay during the boom times.  Mergers and rationalization is inevitable but very much like our political system it will be a pointless exercise without structural reform.

I still contend that credit unions play an important role in the Irish financial services system.  They will be even more important as many banks wll become increasingly selective about focusing on high value customers.


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## kaplan

@ontour
US credit unions pay dividends more than once a year - similar structure to interest scheuldes on deposit accounts.
I have never written than credit unions should exist or not. Rather the sector is important but preserving 410 individual credit unions, many of which are dysfunctional is not important. Profitablity and solvency will drive mergers part of which should be a shift to a lower cost operating model. The test of dysfunctionality is an inabilty to sustain dividends to savers. Even then some of those that are paying are doing so using some creative forebearance - putting rotten meat in the freezer in the hope it will magically thaw out as good meat. 

Cost control within the existing business model and operating cost base supporting as it does high volume low ticket transactions is pretty hard - a zero sum game as costs cannot be reduced in line with declining business volumes. This is not a techical analysis of back office operations but a view on end to end businss process costs and credit co-operative financial performance indicators.
I too contend credit unions are an important and indeed are a systemic part of the overall financial services system, but only if they are restructured and reformed.


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## rossie2010

the main point Kaplan you are making is pointing out the difference between Credit Unions and banks.

The Credit Unions are still thriving because its based on people not "profit and more profit".

Economics works on the principle of carrot and stick approach, paying interest rebate at year end encourages people to keep their affairs up to date.

I know of 4,500 people that are very happy receiving an interest rebate two weeks before xmas each year and receiving a dividend too.

Its a matter of what suits each individual, many individuals like the security of have a few quid in the credit union, safe in the knowledge that they can borrow 4 times it.


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## rossie2010

BOI is rated A1 with Moodys,

AIB is rated A1 with Moodys,

PTSB is rated a3 with moodys


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## rossie2010

Any big rate offered by the banks is accompanied by big conditions.

Getting 1% from your credit union is normally better than up to 3% from your bank.

ie you make one withdrawal in the Bank rate drops to 0.01%, where as in the credit union no such restrictions on ordinary share accounts.


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## Lightning

rossie2010 said:


> BOI is rated A1 with Moodys,
> 
> AIB is rated A1 with Moodys,
> 
> PTSB is rated a3 with moodys



Fitch and S&P rate AIB & BOI as BBB.



rossie2010 said:


> Any big rate offered by the banks is accompanied by big conditions.
> 
> Getting 1% from your credit union is normally better than up to 3% from your bank.
> 
> ie you make one withdrawal in the Bank rate drops to 0.01%, where as in the credit union no such restrictions on ordinary share accounts.



That is a generalisation. It is true to say that many banks have hidden T&C's but not all accounts do. 

Your money is not better off in the CU because of sneaky T&C's on a minority of bank products.

A credit union will pay you between 0% and 2.5% (in a rare case), you can earn up to 3.6% with a bank such as Investec. The difference in return is vast.


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## kaplan

See some good data here on credit union dividends - posters should log their credit union rate.

Whatever about the "not for profit" business model which is common to all credit co-operatives including Dutch RaboBank, paying nothing or next to nothing to savers is wholly dysfunctional and defending it is a perversion of credit union values, principles, ethos and objects. [broken link removed] what an Irish credit union could and should look like

People are borrowing less not more from their credit unions and only 20% of shares are attached to loans - which means of the balance in savings of c€10.5bn, the vast majority of savers are paid a less than decent rate and 20% of them nothing at all.

The governments banking stabilisation bill will allow it to take over a credit union and direct the transfer of its business to other credit institutions including the conversion of share accounts to deposit accounts under the transfer. Why would you think this is being allowed for?

@ciaranT: add the fact that your local credit union may be the one paying a zero rate of return or close to zero. Choice of credit union to save with or borrow from is not an option, whereas choice in banking and building society products, rates and features are. 

@rossie2010 Suggesting that paying elderly savers nothing because they might want access to a loan is rank nonsense.


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## county

@@


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## Complainer

Commission on Credit Unions are now consulting with the public on the future of the industry


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