4 trends to watch in 2021
The financial constraints credit unions faced in 2020 provide insights for how to move forward in the coming year.
The national personal savings rate hit 14.3% in September, according to data from the St. Louis Fed. This is the second-highest rate since 1975. Higher savings paired with low interest rates drove up deposits at U.S. credit unions — nearly all of that landed in core deposit accounts. Balances in checking, savings, and money market accounts increased while the cost of funds dropped. Credit unions are battling earnings pressures and balance sheet shifts brought on by COVID-19, and as leaders look to past trends for insight into how to better navigate the coming year, four stand out.
No. 1: Core deposit growth underpins total share growth and increased liquidity.
Consumers are saving money in preparation of a personal financial downturn; consequently, core deposits at credit unions are on the rise. Total share balances grew 18.2% in the third quarter, with core deposits — checking, savings, and money market accounts — accounting for 94.8% of that growth. Core deposit balances increased 24.5% annually, nearing $1.2 trillion as of Sept. 30.
Core deposits generally command a lower interest rate; consequently, the cost of funds at credit unions is declining. The average cost of funds rate fell 15 basis points year-over-year to 0.84%, which, in part, resulted in a 13-basis-point decrease in the interest expense ratio to 0.74%.
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