The credit union my family belongs to had their annual meeting a couple of weeks ago. During the question and answer session, one of the members asked that the credit union look for ways to increase the rate of interest earned on savings accounts. “They’re not paying a whole lot these days,” the member lamented.
The board and the management listened and sympathized with her, while they gently reminded her how the credit union makes money: loans.
What they didn’t say
They didn’t go on to say that savers like her not only don’t make the credit union any money, they cost them money. The credit union accepts her cash and coins, allows her to withdraw it from dozens of ATMs a few times a month without any surcharges, and automagically transfers money to the cable company with free bill-paying services.
And, they pay her interest on her money on top of all that! If the credit union was filled with people like her, they’d quickly go under.
The only reason that she and other savers like her get all of the goodies that the credit union offer her is because there are borrowers on the other side of the balance sheet. The borrowers pay interest to the credit union. That interest, and other fees, are the main sources of revenue for the credit union.
But don’t leave! We need you!
Many businesses, if they’re wise, can “fire” their unprofitable customers. They might be discreet about it, but they can raise fees, change levels of service, or otherwise make things inconvenient for customers who are only marginally profitable for the business — or worse, a net negative for the business.
You’d think that banks and credit unions would just tell customers who haven’t taken a loan in — say — two years, to take a hike. Or put a “saver surcharge” on their accounts. Or something else like that.
Well, the banks can’t be too mean to their unprofitable savers. They have to keep them around. Without money on deposit, they can’t lend any. (It’s a bit comforting to know that we haven’t yet haven’t abandoned common sense so badly that banks and credit unions lend money without any accounting whatsoever of how much they actually have on hand to lend!)
So, in this way, savers are a necessary evil for credit unions and banks.