Progressive Credit Union in north Dublin has tightened its savings restrictions on members to just €15,000, after reporting a “significant increase” in deposits. Members with funds in excess of this have until the end of this week to withdraw their superfluous savings, as the credit union seeks to cope with the twin challenge of regulatory requirements and negative interest rates.
The credit union, which has nine branches in north Dublin including Balbriggan and Glasnevin, and some 60,000 members, told its members it had to take the “difficult decision” to limit savings to €15,000 per member account from December 4th. Last year, the credit union imposed a total savings limit of €30,000, or €5,000 a month, but it has now tightened this even further.
Members with more than €15,000 on deposit must now reduce their savings to this limit by December 11th. Those with standing orders that bring their savings over the €15,000 limit will find the money is returned to their bank account. There is a limit of €10,000 for junior accounts.
Those with less than this can keep saving until they reach this amount.
Credit union trend
The move from Progressive is the latest in efforts by the credit union sector to reduce the amount of members’ savings they hold. In recent years, credit unions across the State have introduced restrictions on savings, but these were generally north of about €40,000. Now they’re getting lower, which means more credit union savers will be affected.
In October for example, Malahide Credit Union told its members that they would be subject to a limit of just €10,000 while, in the same month, Unity Credit Union in Limerick imposed a limit of €20,000. Bray Credit Union has also just introduced a limit of €30,000 from December 1st, noting that "most banks" are now charging the credit union to hold savings.
Credit unions say the limit on savings is a direct result of the impact of increased savings on regulatory reserve requirements for the sector. Under Central Bank rules, a credit union must keep a minimum of 10 per cent of its total assets in reserves, so the more it has in savings, the more it must keep in reserve, which therefore reduces the amount it has available to pay out in a dividend or loan interest rebate.
Economic uncertainty
Amidst the Covid-19 pandemic, savings in the sector keep rising, due to a lack of opportunities to spend, as well as economic uncertainty. Bray Credit Union said its total savings have increased by over €11 million to €125 million this year.
Low and negative interest rates are also a factor.
“Due to the high level of on-demand savings held by the credit union, over €50 million of excess funds must be placed in short-term investments for which we are currently receiving zero or negative interest rates,” Progressive said, adding that this was affecting its ability to generate a surplus. Bray Credit Union said “most financial institutions” were now charging them to hold funds on deposit, “a situation which is unlikely to change in the medium term”.
