# How safe are credit unions?



## ALBERT* (9 Sep 2008)

As I speak they are cues of people lining up to withdraw money from my local CU. They have been rumours doing the rounds with a few months of trouble brewing and now this development. How safe are my savings?


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## Brendan Burgess (9 Sep 2008)

Hi Albert

It's very difficult to say.  In general, the Credit Unions are not exposed to the same problems as some of the Irish banks are. They have very few loans on property and none at all to property developers. They have only lent out around 50% of the money they have on deposit, so they are very liquid.

However, individual credit unions might well get into trouble through bad debts or bad investing. 


 There is no Deposit Protection Scheme as there is for the banks.

However, they have a stabilization fund. In other words, the fund will lend money to the affected Credit Union if they are a member and if they think that it is solvent. Unfortunately, it's very much arbitrary and the fund can decide whether or not to support the CU.

Brendan


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## Brendan Burgess (12 Sep 2008)

It's covered in today's Irish Independent. There are unfounded rumours about Mitchelstown Credit Union.

According to the article



> "People's savings are insured here," president Kevin O'Flynn told the 'Avondhu'."


 
This is worrying. People's savings in Credit Unions are insured against the saver dying. In that case, the estate gets double the amount of the savings, presumably up to some limit. But I am not aware of any insurance in place against the Credit Union dying.


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## rmelly (12 Sep 2008)

Brendan said:


> However, they have a stabilization fund. In other words, the fund will lend money to the affected Credit Union if they are a member and if they think that it is solvent. Unfortunately, it's very much arbitrary and the fund can decide whether or not to support the CU.


 
Is this available to all Credit Unions, or is it a service for members of the ILCU?


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## ClubMan (12 Sep 2008)

> "If they withdraw their money on the back of these rumours, only to    realise that everything is okay here, it will not matter if they rejoin;    they will lose the benefits they will have built up for years.
> 
> "The credit union is thriving," Mr Flynn added.


*What *benefits?! Shame to see them reacting to rumours with what looks like a sort of FUD factor approach.


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## oldtimer (12 Sep 2008)

We are back to this issue again - what protection has savings in credit unions. I see the statement again ''peoples savings are insured here.'' But are they? This is repeatedly pumped out by branches of credit unions. The fact is they are not.


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## Slim (12 Sep 2008)

oldtimer said:


> We are back to this issue again - what protection has savings in credit unions. I see the statement again ''peoples savings are insured here.'' But are they? This is repeatedly pumped out by branches of credit unions. The fact is they are not.


 
I think Mr. O'Flynn was referring to the savings insurance people build up over their lifetime saving with the CU. If someone who has passed 70 yrs of age takes out their money from the CU and then relodges it, they are back to square 1 on the savings insurance scale.

Most CUs are awash with cash as the average CU can only lend 50% of its savings. This means the balance is invested in a variety of instruments. Even if one or two investments underperform or are of the nature of the Perpetual Bonds, the CU will not face a liquidity problem. If they do so they can apply to the ILCU for assistance from the Savings Protection Scheme which is available to affiliated CUs. Also, each CU is independent of its neighbour and a failure in one should not impinge on any other CU.


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## Brendan Burgess (12 Sep 2008)

Slim, the insurance issue is misleading. It is not insurance against the collapse of the Credit Union, it is against the death of the saver. This is what Sandymount Credit Union says which I presume is the same for everyone:



> *Life Savings Insurance*
> 
> [FONT=Verdana,]*[FONT=Verdana,]Life Savings Insurance is the life insurance cover Sandymount Credit Union provides for its eligible members as an additional incentive for them to save regurlarly. The amount of insurance benefit to which a member is entitled is in proportion to the amount of savings the member has, and depends on the members age at date of lodgement (the maximum benefit payable is € 12,700).[/FONT]*
> 
> ...




*So in practice, if I die before the age of 55 and I have €1,000 saved, I will get the €1,000 back and the insurance of €1,000. *



*Each Credit Union is independent of its neighbour.  While this is correct, if there is a problem with one credit union, there will be pressure on all the credit unions. And if a few Credit Unions go to the wall, the Savings Protection Scheme will be either used up or will have to be significantly topped up.[FONT=Verdana,]*

[/FONT]


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## Slim (12 Sep 2008)

Brendan said:


> Slim, the insurance issue is misleading. It is not insurance against the collapse of the Credit Union, it is against the death of the saver.


 
I thought I was clear on that but obviously not. It is well set out in Sandymount's post.



> *Each Credit Union is independent of its neighbour. While this is correct, if there is a problem with one credit union, there will be pressure on all the credit unions. And if a few Credit Unions go to the wall, the Savings Protection Scheme will be either used up or will have to be significantly topped up.*


 
Pressure from worried members should not cause a credit union to go to the wall! Most credit unions would have no difficulty with liquidity. That said, conditions this year are tough for many credit unions. Bad debts and poor investment choices will put pressure on their abilities to pay dividends in line with members' expectations. However, very few should face real difficulty cash wise.

Slim


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## Slim (12 Sep 2008)

Slim said:


> .....they can apply to the ILCU for assistance from the Savings Protection Scheme which is available to affiliated CUs.


 
It's available *only* to CUs affiliated to ILCU.

Slim


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## ClubMan (12 Sep 2008)

Slim said:


> I think Mr. O'Flynn was referring to the savings insurance people build up over their lifetime saving with the CU.


Wonder why he didn't make that clear then rather than making vague utterances about "insurance" and "benefits"?


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## dunleas (12 Sep 2008)

D'ont know how safe your CU is but I do know this Hedge Your Bets.You are entitled to open accounts in 3 Cu branchs and this means 3 death benifit insurance policys which will all be paid .


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## Guest106 (13 Sep 2008)

Dunleas.....are you sure about that ?


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## ClubMan (13 Sep 2008)

Surely you can only be a member of a _CU _with whom you have a "common bond"? In general this would probably restrict you to at most two - e.g. the one in the area in which you live and a work one where available? On the other hand I'm not so sure how strictly _CUs _enforce the "common bond" guideline/rule?


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## Slim (14 Sep 2008)

dunleas said:


> D'ont know how safe your CU is but I do know this Hedge Your Bets.You are entitled to open accounts in 3 Cu branchs and this means 3 death benifit insurance policys which will all be paid .


 
This is not correct. You may open accounts in CUs where you qualify by virtue of sharing the common bond. Nowadays that is quite broad, e.g where you work, where you live [if different], your profession or a CU where a relative is a member.


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## Slim (14 Sep 2008)

ClubMan said:


> Wonder why he didn't make that clear then rather than making vague utterances about "insurance" and "benefits"?


 
Yes, it looks like he was confusing it a bit. I noticed that that article was further edited in the tabloid version of the Indo, losing some context.


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