CORK, Ireland–Saying it is responding to the surge in member savings, one credit union here is implementing a transaction charge for members who want to access their savings accounts.
First South Credit Union is believed to be the first in the country to put in place charges for transacting on savings accounts, according to The Independent. Effective in February 2021, there will be a fee of €1 each time a First South member wants to make a deposit or withdrawal from their savings account.
Members are being offered an alternative to the €1 for each transaction. They may opt in to a €4 a month fee that would cover all in-person branch transactions and electronic transfers.
As CUToday.info has previously reported, the new deposit/withdrawal fee comes at the same time many credit unions in Ireland have put a cap on the overall amount a member may place in savings. Credit unions are required to set aside €10 in reserves for every €100 on deposit, while Irish banks are charging credit unions for funds on deposit rather than paying interest, also known as negative interest rates. And the overall loan-to-share ratio is under 50%, in part due to the inflow of member funds that is taking place at the same time investment returns are low.
Ireland’s Central Bank, which regulates credit unions, recently told CUs they should not pay a dividend or give members a rebate on their loan interest this year, even though the rebates are viewed as a traditional “Christmas bonus” by many members, according to one person.
‘Changing Landscape’
The Independent quoted an email to First South CU members that read, “The financial landscape has changed considerably over the last five years. The returns on investments are extremely low, and in some cases the credit union is being charged a negative interest rate. In order to maintain our service levels, we will introduce fees and charges from 1 February 2021.”
CEO George Cantwell told the publication the new fee would not apply to those under the age of 18, or to anyone putting money into a young person’s account. Students would also be exempt.
Cantwell said the €215-million First South has €185m is deposits, while its loan portfolio is just €48 million. The CU expects to report a loss of €200,000 for 2020.
FSCU said a €30,000 savings cap is being applied to new members and will likely be extended to all members later next year.
“You can’t run a business when your savings are costing you money,” Cantwell told The Independent.
Little Return to Be Had
He said there was little or no return to be had from investing excess funds, with even recent Government bonds giving negative returns.
The 34,000-member credit union is set to report a €200,000 deficit this year for the first time in years.
First South’s decision comes as Ireland reports a savings rate of 35.4% (household savings divided by gross disposable income), which is considerably higher than the EU average of 24.6%.
First South CU and other CUs aren’t the only financial institutions changing their fees. Bank of Ireland and AIB has also introduced new fees.
So their retail customers are now getting hit with charges. Rather than introduce negative rates on individual savers, both Bank of Ireland and AIB have gone about it a slightly different way, by introducing significant increases in the fees current account holders must pay.