Rock bottom: Some CDs now earn zero percent

Nevada Federal Credit Union has zero interest in obtaining savings from some of its members.

That's exactly what it pays on certificates of deposit held by members who get no other financial services from the credit union.

Nevada Federal CEO Brad Beal explained Wednesday that CDs actually produce a loss for the credit union, given the lack of lending opportunities, paper-thin interest paid on short-term government securities and expected high-deposit insurance premium.

"It's an odd confluence of factors here in our economy," Beal said.

The depressed economy has dried up lending opportunities that Nevada Federal normally has, he said.

Nevada Federal can invest the money in short-term government securities that yield 0.1 percent, he said. However, the credit union expects the insurance premium for deposits to reach as high as 0.4 percent this year, compared to 0.15 percent last year and zero during good times.

The expected insurance premium may not sound like much, Beal said, but 0.4 percent of $700 million in deposits is $2.8 million in additional costs for Nevada Federal.

The National Credit Union Administration wants higher premiums from federally insured credit unions so that it can pay for losses that need to be absorbed so that the failing credit union can be closed or merged with a stronger credit union.

As a result of those factors, Nevada Federal loses money on CDs, Beal said.

"That basically leaves us in the hole, and all the members have to pay for it," Beal said. "I can't see making the other members pay so we can give that guy a dividend."

The credit union encourages members with only CDs to take their money elsewhere, where they can earn interest.

He estimated that less than 1,000 of Nevada Federal's 84,000 members use the financial institution for nothing but CDs.

It's the second time in recent months that Nevada Federal has signaled its desire to reduce member savings because of problems putting cash to work in loans.

In March, the credit union offered to pay savers to close accounts of $25,000 and more bonuses, ranging from $25 to $75 depending on the amount in the account.

Despite the zero-interest CDs, members with multiple relationships with Nevada Federal can get interest on CDs. A one-year CD yields 0.3 percent for those members, and Beal said that's about average for financial institutions in the market, Beal said.

Contact reporter John G. Edwards at jedwards
@reviewjournal.com or 702-383-0420.