Notice to Members from the Board of Directors – Savings Limits September 2020
Over the past number of years, Tipperary Credit Union has seen a dramatic increase in new savings. We see this as a vote of confidence from our members that we are their #1 financial provider and we thank all members who trust us with their savings.
Unfortunately, there are knock-on implications for all credit unions when accepting new savings. When the increase in new savings is higher than the demand for new loans, these funds must be invested at zero or even negative rates. There is also a regulatory requirement set by the Central Bank that all credit unions must “reserve” a minimum of 10% of new savings. In simple terms, this means that a credit union must make a surplus at the end of the year of at least 10% of new savings; so if there is €10million of new savings in a year, €1m surplus must be set aside as a regulatory reserve. This greatly reduces the ability to pay a rebate, dividend, or carry forward funds into the future.
The issue of savings growth is a significant risk for the entire credit union sector as we are largely victims of our own success. Throw into the mix the economic impact of COVID-19, falling investment income, rising costs, and restrictive regulatory and legislative requirements; then the issue of share growth must be addressed as a priority.
For the reasons set out above, the Board of Directors of Tipperary Credit Union made the decision to introduce a temporary savings limit of €30,000 per member across all accounts. This came into effect on 1st February 2020.
On review of this temporary savings limit, and exasperated by the COVID-19 pandemic, it was agreed by the Board of Directors that further measures are required to stem the large inflow of savings into our Credit Union. Therefore, effective 1st September 2020, members will be asked to limit savings to a maximum of €2,500 per month while also staying within the €30,000 overall savings limit (across all accounts). Members are free to lodge over €2,500 in a month so long as they ensure they make sufficient withdrawals in that same month to remain within the €2,500 limit. Some examples are set out below:
Example 1 = Member’s balance on 1st September 2020 is €4,000 and on the 30th September 2020 is €6,000. Member has remained within the €2,500 limit and no action required.
Example 2 = Member’s balance on 1st September 2020 is €4,000 and on the 30th September 2020 is €8,000. Member has not remained within the €2,500 limit and will be asked to withdraw funds to comply with the new savings limit. Member will be given one month’s grace to comply with savings limit.
The Board of Directors will be constantly monitoring the level of savings in our credit union and reserve the right to increase, decrease, or remove entirely the temporary savings limit in the future. Our staff will be monitoring daily to ensure all members stay within their savings limit.
These savings limits will ensure that Tipperary Credit Union continues to be a strong, secure and top-performing credit union. It does not impact on our ability to lend and we ask that you consider Tipperary Credit Union for any lending needs now and into the future.
We thank you for your understanding on this matter and apologise for any inconvenience this may cause.
Frequently Asked Questions:
If your question is still unanswered please email firstname.lastname@example.org
Why are you limiting/imposing a savings limit?
The Board of Tipperary Credit Union took the difficult decision to limit overall savings to €30,000 per member and monthly savings to a maximum of €2,500 per month. These decisions were made due to a significant increase in the value of savings made at the credit union and the knock-on implication this has had on the credit union’s ability to maintain the regulatory reserve set out by the Central Bank of Ireland, which is a minimum of 10% of our total assets.
This means that for every additional €1,000,000 of savings, we must allocate €100,000 from our surplus/profits to our regulatory reserve, and this can have the effect of depleting the amount available to pay a dividend/rebate at year-end and roll out of new services such as current accounts, etc.
We also face the challenge of a low-interest-rate environment which is greatly reducing the investment income that Tipperary Credit Union Credit Union earns on its deposits. In some cases, up to 30% of our savings are potentially exposed to 0% or negative interest rates. Therefore, the low-interest-rate environment is also impacting on our ability to generate a surplus.
How many members will this affect?
This will affect all members but in particular members with more than €30,000 in savings and members saving more than €2,500 per month. The overall number of members impacted is less than 5% of our entire membership.
What is the saving restriction?
The credit union now has two saving restrictions.
The first restriction is on the total savings a member can have, which are capped at €30,000 across all accounts.
The second restriction is on the amount a member can save each month, this is capped at €2,500. A member is free to lodge more than this but must ensure withdrawals are made to remain within the €2,500 limit per month.
What about members with savings above €30,000?
Members above €30,000 are encouraged to withdraw funds to comply with this limit but this is not mandatory. However, such members will not be able to make lodgements until their savings balance goes below €30,000.
How long will the limit last for?
The Board of Tipperary Credit Union will keep the savings restriction under constant review, if they make any decision to change or remove the current limit, members will be informed.
Does this mean the credit union is in difficulty?
No, this has no bearing on the day to day operations of the credit union. Tipperary Credit Union is adequately capitalised at €25m and has assets of €158m. Over the past five years, savings have increased by €26m and stand at over €131m and we must meet the regulatory reserve of 10% of our total assets at all times.
Each time our savings increase, we must allocate more money from our surplus funds to meet this regulatory reserve, therefore reducing the amount we have available to pay out a dividend or loan interest rebate. It also reduces the amount we can afford to invest in new services and new technology options that can benefit all our members.
To reduce the impact of this savings growth, the decision was reluctantly taken to limit savings to benefit the greater number of our members.
Will this affect the dividend offered?
Until the growth in new savings is under control, it is too early to determine what rate of dividend (if any) we can pay out. We will be communicating with members directly to inform them once we are able to do so.
Are my savings safe here?
We can assure you that your savings remain safe and secure at Tipperary Credit Union. We are a financially strong and stable credit union with €25m in capital reserves and €158m in assets. We made a surplus in 2019 of €1,293,727. In addition, your savings continue to be guaranteed by the Government Deposit Guarantee Scheme up to €100,000.
Does this mean the credit union cannot give out loans?
Tipperary Credit Union is in a strong position to give out loans, subject to appropriate assessments being completed. Our ability to lend is in no way affected by the savings limit. We continue to provide valuable loan services to the local community.
I’m affected by the savings limits, what will I do now?
You will receive a letter from Tipperary Credit Union if you go over either the €30,000 savings limit or the €2,500 monthly savings limit. This letter will ask you to withdraw funds and give you time to review your options. Unfortunately, we cannot give out financial advice to members on investments or other savings options. You are recommended to talk to your financial advisor.
I have received a letter advising me I have exceeded the savings limit. How will this affect me?
Members who reach €30,000 or exceed the €2,500 monthly savings limit will be prevented from making further lodgements until withdrawals are made to bring them within the respective savings limits. Such members will be informed via letter and given ample time to make the necessary withdrawals.