# Credit Union Dividends



## Lauralashes

My mam has a lump sum amount in her credit union account, just savings and doesnt owe anything on a loan.

Dividends are due in Nov in the branch.

If she withdraws a substantial amount of those savings towards the end of Oct will she still be entitled to her dividends for the year based on her saving balance until the end of Oct or does the full amount of savings have to be in her acc in Nov in order to receive the dividends due?

Thanks


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## Lightning

Most credit unions are currently paying zero or close to zero as a 'dividend'. 

With banks if you withdraw during the year you normally get interest accrued to date. I am not certain, but I don't think the same applies to CU 'dividends'. 

In any case the dividend will most likely be tiny or non existent. 

You are better off putting your money on deposit elsewhere if your goal is to get a good return on your money.


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## oldtimer

The credit unions I am aware of all pay ''dividends'' similar to banks i.e. calculated up to the date of withdrawal and added after the AGM which is usually held in Nov/Dec.


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## Lauralashes

Anyone1 said:


> Thas not true, the vast majority of Credit Unions will pay a dividend. To the OP, the dividend paid in Nov/Dec is based on the financial year ended the 30th of September 2009. So any withdrawals after that will not affect the amount she receives in any way. There are other benefits of having money in a Credit Union, and I would urge anybody who has a Credit Union account to speak to their Credit Union. All Credit Unions are different, so what happens in one is in no way related to another, so what you hear or think, could be(and usually is) way off.


 

Thanks for your replies 
The fact that the financial year ends on 30th Sept answers my query - thanks a mill.


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## Lightning

Anyone1 - Please provide back up for the claim that most Credit Union's will not pay close to zero or zero on 'dividends'. 

RTE recently reported that the number that will pay zero will double. 

The Financial Regulator has told 76 Credit Unions to pay zero (that excludes those that already planned to pay zero). 

The Sunday Business Post reported that recently that many credit unions will pay close to zero. 

Again, if you want to earn a good return on your money, there are better options than a Credit Union.


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## Lightning

Please don't misquote me, I said most are *paying zero or close to zero*. 

I believe what The Sunday Business Post has said is accurate, most Credit Unions are paying zero or close to zero.

Please provide a source, if you believe most Credit Unions will not be paying close to zero in interest.

Again, if you want to earn a good return on your money, do not put money in the Credit Union.


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## TSThomas

Is this source more appropriate? ;O

http://www.creditunion.ie/Default.aspx?p=111&n=178&a=259_ ...__Over 59% of credit unions paid dividends to members in 2008 of between 2% and 3.99% - with a further 4.4% of credit unions paying between 4% and 5.25%..._

_ According to ILCU Chief Executive Kieron Brennan... "What it will mean in accounting terms is that the trading surplus for a number of credit unions will be reduced for the 2009 financial year ending in September and there will be a number which will be unable to pay a dividend next year."... 
_


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## MysticX

Bear in mind as well that interest rates were a lot higher in 2008 as well. The best ones at the time during various periods of the year 2008 were for example:
On Demand
-First Active eSavings @ 5.22% AER
-Anglo Premium Demand @ 5.5% AER

Fixed
-Halifax 1 Year @5.9% AER
-Halifax 1 Year (offer that ran into early 2009) @5.6 AER

Other less flexible options
-AIB Online Notice @ 5% - 5.25% AER (tracked the ECB rate very tightly)
-FA / UB eSavings Plus @ 5.5% AER


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## Lightning

TSThomas - Good 2008 source from the horses mouth. Thanks. 

MysticX - Valid point. 

So in 2008, 4.4% of Credit Unions paid close to what was a competitive return on your money in 2008. It would appear, based on Credit Union comments, that this figure is likely to be lower this year. 

So in 2008, 95.6% of Credit Unions did not give their members what could be classified as a competitive return on their money.


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## MysticX

Let's be fair about this and maybe I'm not reading this right?


			
				Anyone1 said:
			
		

> There is no source, as Credit Unions year end only just finished. Most are in the process of auditing their final accounts, and then producing their year end results.





			
				Anyone1 said:
			
		

> And you will see that Credit Unions are paying a better return than most of not all other institutions


This works both ways in the very least as you can't say that the Credit Unions are providing a better return with said missing source in mind even as said missing source is used to contest the opinion that Credit Unions aren't providing a competitive return?

I do know that when I checked in 2008 my local credit union was only offering a 2% return and the ECB rate was pretty much stuck at 4% all year (bar one temporary bump t0 4.25%)... so off to the banks to avail of one of the 5%+ offers available. 



			
				Anyone1 said:
			
		

> Please show me a list of returns for deposit on demand accounts, where the average deposit is 8000 euro. And you will see that Credit Unions are paying a better return than most of not all other institutions.


 
Stating a precise figure for deposits brings banded rates into questions. 8000 generally works in favour of the top offerings of banks that work with banded rates as bar two - three exceptions that I can think of off the top of my head (and I don't consider these full on demand accounts as withdrawls penalise your return), 8000 is within the lower band that offers a better rate of return than the higher band. There does exist demand accounts by two of the largest Irish banks where 8000 is in the lower band and the returns increase marginally with exponentially increasing amounts though the returns are so near negligible regardless of the band that they don't come close to acceptable let alone competitive.

Naturally theres the AAM Best Buys (which includes link to the products homepages) to compare to any CU returns that can be / if provided?.... http://www.askaboutmoney.com/showthread.php?t=102329



			
				Anyone1 said:
			
		

> Now add in other factors, Credit Unions don't apply any charges on your account, unlike alot of other institutions. People are not penalised for withdrawing their money either, its on demand.


By institutions I assume you mean the explicit saving accounts offered by the banks and building societies and by charges I assume you mean charges for everyday usage? Bar the exceptions I mentioned previously I can't think of any penalties for withdrawing money and I can't recall charges at all for any savings account. For example:
-Halifax Flexisaver
-Anglo Premium Demand
-AIB Online Notice Deposit 7
-Northern Rock Demand Online (theres the 1K threshold but that's technically a band not a penalty)
-Postbank savings accounts
-First Active / UlsterBank eSavings (not Plus)
-RaboDirect
-Irish Nationwide Instant access
-BOI and AIB standard demand accounts (very little interest but still no charges)

Can you provide any examples especially for charges?


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## IsleOfMan

fungus said:


> TSThomas - Good 2008 source from the horses mouth. Thanks.
> 
> MysticX - Valid point.
> 
> So in 2008, 4.4% of Credit Unions paid close to what was a competitive return on your money in 2008. It would appear, based on Credit Union comments, that this figure is likely to be lower this year.
> 
> So in 2008, 95.6% of Credit Unions did not give their members what could be classified as a competitive return on their money.


 
I find my local Credit Union offers a great service. I probably keep a little too much money with them than I should. The only thing I don't like is that you find out the dividend percent at the end of the year rather than at the beginning of the year.


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## Lightning

Is the "great service" really worth so a low return for your money? I have found the level of service excellent with many banks such as Halifax.


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## IsleOfMan

fungus said:


> Is the "great service" really worth so a low return for your money? I have found the level of service excellent with many banks such as Halifax.


 
There is never a queue. I can park outside. I got 2.5% last year. I can get cash. There is insurance cover on my savings if I die. Good opening hours. Pleasant staff not trying to sell me something. It's also about supporting something local.

I also have dealt with Investec, Anglo, First Active, EBS, Irish Nationwide and a few more and still do but I like to keep a few Euro local. Works for me.


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## keyboard

I worked part time during college in a local credit union. Credit unions cater for a different client than banks. Credit unions can not pay out a dividend when they do not achieve a surplus (profit) in their financial year. They must also meet a reserve requirement which further dilutes the surplus. Poor investment choices and difficulties with bad debts is going to affect the credit union dividend payout rate this year. That is inevitable. 

Credit union deposit holders, dare I say it, are not sophisticated consumers. From my experience of dealing with members, the phrase ‘cute with their pennies, but foolish with their pounds’ comes to mind. I’ve seen members more interested in complaining about the 1% commission on exchanging $100 into Euros, instead of questioning the safety of their deposit (before the government guarantee) or inquiring about the poor investment choices many credit unions made in recent years. Also, many members are more interested in the monetary amount of their dividend rather than the rate. I’ve worked the day after the AGM when the dividend is paid out and it is a crazy day! The dividend rate the credit union in which I worked in was very low, but I did not come across one complaint regarding the rate. Members withdrew the full amount of their dividend, down to every last cent and saw it as free money almost.

Many deposit holders have much of their deposits tied against loans. They may also see a rise in their deposit balance as a means to qualify for a loan in the future, or even have the ability to cash their weekly cheques instantly. If deposit holders are unhappy with the dividend return, I believe the majority of them have already moved to banks etc. Many current deposit holders are in a credit union for different reasons than just gaining a decent interest rate/ dividend.

There is also the culture and loyalty of members to consider. Many members of credit unions have been members for decades. The credit union served them when banks were not as welcoming to the overall consumer market. They see the credit union as a safety net, a convenience, a social aspect, and even a routine. I’ve heard numerous members, particularly older members complain of the banks whether it is the queues, the hidden charges, or the fact they were asked for ID when carrying out a transaction. There is definitely a section of society that were largely distrusting of banks long before NAMA etc.

True, the movement will face some tough questions this winter in their respective AGMs, but a low dividend will not impact negatively on credit unions for long. While the last of the large deposit holders may jump ship, many will stay. It may be no harm for credit unions to decrease their deposit holdings a little. This may help alleviate the dividend demand that they are trying to meet annually. With a lower deposit base, there is less need to carry out risky investment activities or grant imprudent loans. Credit unions exist for different reasons to banks. 

Personally I see the difference between a 2% rate and a 5% rate immaterial. After DIRT and inflation, the real return is so low. Surely people with large amounts of cash can do something more creative and less defensive rather than being reliant on meagre interest rate offerings?


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## kaplan

Credit unionist rhetoric aside: The problem with credit unions which is uniquely an Irish problem is they cannot pay market prices for savings or charge market prices for loans. They continue to use the 1950's original start up way of doing business which is to remunerate savers from profits at year end (if any)- treating savers funds as a form of capital. 98% of all money saved is held in share accounts.

Credit unions in other countries moved on from dividends paid from profits years ago - canada & australia - where interest bearing deposit accounts are used to gather savings from the public. US credit unions pay dividends more than once a year effectively operating as near interest bearing deposits.   

The problem for Ireland's credit unions is their business model is out of date and exposed to investment and loan losses. Concerned over financial stability the Minister for Finance has ordered the Financial Regulator to review the sector. 

http://www.sbpost.ie/news/ireland/review-ordered-of-credit-union-sector-45238.html


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## IsleOfMan

Yes, but we have seen the Building Societies including the trumpet blowing MUTUAL becoming involved in bad lending decisions in the commercial sector over the past number of years and are now crying for help. Let's leave the sleepy Credit Unions alone but regulated properly.


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## Brendan Burgess

It is a very odd request from the Minister given that the one area of the Financial Regulator which performed very well was the Credit Union supervision area.

Brendan Logue, the Registrar of Credit Unions, correctly resisted the Department of Finance's wishes to allow the Credit Unions more flexibility in their lending. 

He had terrible trouble with the ILCU trying to get proper governance for the Savings Protection Fund. I don't know if that has yet been achieved. There is one fund for both the Republic and Northern Ireland. 

I would guess that the FR asked the Minister to ask them for this review to let the Credit Union movement know that the Minister is now fully behind the FR.


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## mac2

It's funny, earlier in the year we were being told that most credit unions wouldn't be paying a dividend or were making a loss. Now, even though only a small minority will not be paying a dividend, there's still some that are determined to have a go at credit unions.

AIB pay 0.01% and BOI pay 0.01% on demand deposit accounts - as close to Zero as you're likely to get. Where are those banks who are paying higher rates getting the funds from, because they're certainly not paying the rates from profits, because they're broke. And getting subsidies from the taxpayer!

If the review of credit unions leads to a modernisation of the Credit Union Act, I think it will be worth it, as it could lead to a real alternative to the current banking regime. 
But, unfortunately, I fear the Minister for Finance is reacting to the banking lobby, who desperately need a distraction from their shenanigans. The old boys club that is the bankers & regulators of this country do not really want to see any real change to the old regime and will engage in window dressing to give the appearance of reform. Meanwhile those, like credit unions, who want to offer people a better deal will be attacked and pilloried.

After all the recent banking scandals, has there been any publication of any review or has there been any outcome to any investigation? Anything at all? No, I don't think so. Same old, same old.


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## kaplan

@ Brendan
The Minister’s intervention is not unsurprising given known problems facing the credit union sector – investment and loan losses, liquidity and adequate reserves were all listed as problematic by the FR in its most recent speech on credit unions (Sept 09) see FR site for 
_*“Leading Through Recession - Regulatory and Compliance Challenges” *_
_*[broken link removed]*_

Reading between the lines the regulator has a quite lot to be concerned about and clearly the Minister is responding. 

After intensive political lobbying by ILCU, loan limits were increased in early 2007. Since then less than 45 credit unions have applied for increased flexibility which requires them to operate at higher prudential safety standards. 

90 credit unions were investigated last year by the FR for breaches of lending limits – old habits die hard in the movement. 

More recent ILCU lobbying for lending limits increases is determined by it maintains a demand to refinance troubled unsecured lending – yet prudential standards are not being achieved by the majority of credit unions in particular reserves/capital buffers.

The FR has moved to prevent credit unions dipping into their reserves to pay dividends by introducing a 10% reserve requirement which is a regulatory minimum for credit unions – the international benchmark is 15% reserves to total assets. 

The stabilisation mechanism and fund currently owned and governed by ILCU hasn’t yet been reformed. Regulatory approval has not been given and it remains an ad-hoc loose form arrangement – recall the League once used the fund to finance the ISIS project, funded the purchase of its headquarters and continues to advance loans to credit unions to do up their premises. 

@mac 2
The notion of any modern credit union sector failing to pay interest on deposits is quite alarming – it’s a silly deflection to compare rates with bank demand rates as credit union share accounts are legally 60 day notice accounts (check the act) – in any event as Irish credit unions have never paid market prices for savings or charged market prices for loans the comparison with banks is spurious. It’s more important to compare Irish credit unions with their international peers and in all aspects they fail to pass muster as modern credit unions.


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## Catch22

Kaplan - Typical anti credit union speechifying. The vast majority of credit unions are compliant, even with the new regulatory reserve ratio.

On the one hand, you compare credit unions with the international credit union movement and on the other, you tell us that credit union share accounts are 60 day notice accounts. Don't try to pull the wool over people's eyes. You know that's not true in practice. 

You can't have it both ways - credit unions in Ireland are not allowed to operate on a level playing pitch with the banks and are not allowed to offer the same range of services as credit unions in other countries, so inane comparisons are pointless.

Credit unions traditionally paid better rates than the banks on savings, so I don't know where you get the idea that credit unions 'never paid market prices'. In fact, one of the reasons for the growth in credit union savings in recent years was because credit unions were paying much more than the banks, so you're completely wrong on that one.

It is more correct to compare Irish credit unions with Irish banks, as both are operating in the same market. What is relevant is that, even though credit unions and banks are operating in the same market, there are much more favourable rules for banks.

Bottom line is, the banks are bust and credit unions aren't. Banks are bleeding us dry and credit unions aren't.

And, by the way, I don't think it was a silly deflection for mac2 to compare rates with bank demand rates. The banks and credit unions are in competition. I suppose you think credit unions should be comparing rates with their international peers. What's the rate in Australia got to do with price of eggs, you silly Billy?


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## TSThomas

mac2 said:


> AIB pay 0.01% and BOI pay 0.01% on demand deposit accounts - as close to Zero as you're likely to get. Where are those banks who are paying higher rates getting the funds from, because they're certainly not paying the rates from profits, because they're broke. And getting subsidies from the taxpayer!



Thing is though, you know what you're getting in advance... you don't wait a year & *Surprise! No return / great return for you this year*. I can't switch CU when their rates change... because they don't advertise them


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## kaplan

@catch22
You miss the point – my comparison with credit unions elsewhere was not on rates paid on deposits. Firstly consider your statement: “*vast majority* of credit unions are compliant, even with the new regulatory reserve ratio” – when initially published the 10% reserve ratio would have meant that over 180 would not have been able to pay a dividend (League figures) – that’s 35%. Regulatory estimates put the figure at over 220 or 52%. Forebearance will reduce this figure but its been reported that 50 credit unions won't pay a dividend this year which is 12%. If these 50 are in the top 150 or so then upwards of €4bn in savings will not attract a dividend - that's 33% of total savings held in credit unions - even if half of the 50 are in the top 150 it represents close to €2.8bn in savings. With ninety reported in 2008 as non-compliant with lending limits this is 21% or 45% of the top 200 given the rest barely lend any more. 

While the regulatory reserve ratio is to be 10%, (introduced in part to prevent credit unions dipping into their reserves to pay dividends) - the generally accepted prudent ratio is c15%. 

Uniquely Irish credit unions continue to fund loans using capital raised through ordinary share accounts. Dividends are paid from profits made from lending. Paying market rates refers to the successful credit union business model used in other countries where credit unions pay interest on deposits and charge interest on loans at market prices. They also provide a wider range of savings and loans products, current accounts, charge fees for their banking services and offer a wide range of third party products (insurances etc). Irish credit unions on the other hand continue to use a basic model first introduced in the 50’s and have made very little progress in expanding the products and services they offer.

The problem for Irish credit unions is they are very effective a gathering deposits but ineffective in making loans. Their basic business model which remains a start up phase (shares funding loans remunerated from profits) has been slowly degrading for some time. And their market share in consumer lending has been on the decline for the past ten years. Today most lend less than 50% of assets and far too many are well below this average figure. The financial performance benchmark is that loans should be a minimum of 70% of assets. As loan income declined and emphasising a high dividend rate (4% V market prices of <2%) they chased higher returns on their excess funds/investments- higher return meant higher risks – the result was an investment bubble that burst last year. The loan book of increasingly higher risk unsecured loans began to unravel as early as 2005 when over 70% reported loan delinquency well in excess of their own agreed minimum performance benchmark of 5% of loans. This year loan delinquency it seems will rise to 10% of loans which means a substantial increase in bad debt provisions and write offs. And with a cost income ratio of 80%+ there is little room to generate the profits required to cover loans and investment losses, pay dividends and build reserves. Whatever about investing in modern technologies. 

It is correct to say they are inhibited by legislation that is designed to prudently control balance sheet risks of small credit institutions such as credit unions – but they are also inhibited by their own failure to advance the business case for greater flexibility. Mortgage origination wasn’t begun here until 2006: yet credit unions could have been active in the market since well before 1997. And could have developed the competence to provide mortgages off their own books. 

In truth credit unions are self-inhibiting in developing the central systems, products and services they are permitted to provide under law. Their products and services (those within their control) remain the basic share and loan account. There is nothing in law preventing credit unions offering credit cards, basic bank current accounts, revolving credit, term deposits or a host of additional services. Some have started to offer third party insurances, etc but their fee income to total income ratio remains below 1% which is miles off where their peers are operating in the US, Canada and Australia. 


Dividend payments have also been discussed on this thread:http://www.askaboutmoney.com/showthread.php?t=110386


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## Catch22

Kaplan- now you're just making things up as you go along. Firstly you say 'Irish credit unions have never paid market prices for savings', then you say 'a high dividend rate (4% V market prices of <2%)'.

Credit unions most definitely are not permitted to offer credit cards, overdrafts or revolving credit and it is misleading to state otherwise. Sounds to me more like anti credit union propaganda than any serious point on credit union reform.

The regulatory reserve ratio IS 10%, not 'to be 10%'.

By the way, if the Yes vote in the Lisbon treaty had been 88%, I think we'd all agree that would be the 'vast majority'.

The credit union representative bodies are not showing great leadership and should be strongly advocating modernisation and reform of the movement. There is a great opportunity for credit unions now to offer a real alternative to the corrupt and broken banking system.

500 credit unions is simply too many and ILCU and CUDA should be showing leadership by encouraging credit unions to merge and rationalise in order to gain from economies of scale and in order to be able to offer more services on an economic basis.

One hopes that the review of credit unions ordered by the Minister for Finance will consider introducing long needed reforms, but I suspect that the review is not being done in the best interests of credit unions, but for the benefit of other vested interests.


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## kaplan

@Catch22

We may well be on the same page: but first some clarifications:

Boom time dividends were as high as 4% when market prices were far less than 2% - if you consider the share account as similar to a demand deposit then both duration and price inelasticity is important to understand in pricing the rate to be paid. Which is a technical way of saying credit union dividends were far too high – had they been competing at market prices using diversified products (demand/term/time deposits) then they would have paid far less and still managed to attract and hold savings – and they also benefit from favourable tax treatment (Non-Dirt) share accounts in which over 80% of all savings are held. The dividend maximisation strategy prevented considering alternative pricing.

“There is nothing in law preventing credit unions offering credit cards, basic bank current accounts, revolving credit, term deposits or a host of additional services.” This is a correct statement – regulatory authorities could approve these products which of course can be offered through third party alliances (e.g. UK credit unions/Co-OP Bank current account)

There are 419 (not 500) registered credit unions – ranging from 500k to over 370m in assets – far too many – rationalisation is required if credit unions are to achieve both scale and scope efficiencies – many think the number should be about 100 or so with the balance becoming satellites – but merging isn’t a silver bullet as the system hasn’t the corporate resources to develop scale and scope efficiencies. This is why credit unions in other countries own central organisations that provide the wherewithal to achieve operational efficiency, diversify products and access wholesale money markets etc. 

Trade bodies ILCU/CUDA have promoted rationalisation but it’s a lucky bag version offering many differing flavours from local marketing to full blown mergers – ILCU is incapable of leading as it does not have the power and influence it pretends to have and CUDA is far too small. 

Credit unions could offer ordinary people a viable alternative to the commercial high street banking. But they have proven they cannot reform from within – if they could they would have be now. With luck the Ministerial review may galvanize him into taking action and put a structure in place to drive through reforms. That is if he considers the sector to be of systemic importance.


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