A snapshot of nine credit unions in Sonoma, Solano, Napa and Marin counties shows double-digit growth in key metrics such as savings account deposits and lending activity through the end of March.
According to the California and Nevada Credit Union League, which is a Sacramento-based association representing financial institutions, $ 4.5 billion has been dumped into savings accounts of nine credit union members in the North Bay Area. This is a record saving of 119% over the same period last year.
Deposits in current accounts decreased by 62% compared to the previous year.
Jay Pragh, clinical professor of economics and finance at the Drucker School of Management in Claremont, near Los Angeles, told the Business Journal that credit union members were likely transferring money dumped into their checking accounts and saving it instead of spending it. dollars.
“There is a ton of money in the system waiting to be spent,” Prah said.
Most of this money came in the form of government aid programs designed to keep people afloat during economic constraints due to the pandemic. With so much government spending, this money could lead to different outcomes that economists are keeping a close eye on. Prague warned that inflation could rise to 6% by next year if left unchecked.
“(The Federal Reserve) is fanning this, but the situation will get worse and we will start to see these cash balances disappear due to the rise in prices,” Prah said.
Lending activity is another steady trend being watched by economists and financial leaders. The credit union team processed $ 8.4 billion in loans, up 13% on 2020.
The first mortgage loans took the lead, with a record $ 4.3 billion in loans disbursed through these credit unions, a 29% increase over last year. All loans amounted to $ 8.4 billion – an increase of 13%.
This was facilitated by low interest rates. As long as rates remain low, Prah said, would-be homeowners and existing residents refinancing will see the need to take advantage of the credit bonus.
While low rates are good news for borrowers, they can be a curse and a blessing.
“This is a delicate situation for an affiliate. Members might be happy at first and then saddened, ”said Pragh, explaining how low rates are good for loans but bad for savings. Members who seek more profits may find that the savings rate is tighter.
“Half of their members will be unhappy when they try to find the rate of return (on the accounts),” he said.
The numbers show that clients opted to improve their profitability by placing their funds in money market accounts, which grew 242%, with a record $ 3.4 billion among credit unions in the region. Enthusiasm for these account types offset an 18% drop in certificates of deposit of $ 1.1 billion.
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“You can provide more liquidity with money market accounts,” Ron Felder, CFO at Redwood Credit Union, told the Business Journal.
Felder said his Santa Rosa credit union is showing no signs of slowing growth with its progressive trends emerging from the pandemic.
For the six months ended June 30, this Sonoma County financial institution reported more than $ 6 billion in savings accounts growth, up 24% over 2020.
“We’ve seen members of the organization take their money and save it,” he said, listing rounds of government incentives, unemployment benefits and loan deferrals as contributors.
At the same time, membership growth grew by 7%, which is 4% less than the average of nine credit unions. In total, a record 26,000 new members have been added to their rosters.