A $1 bln co-operative financial sector, flying under the radar and growing strongly, offers some high returns for savers

Recent offers from a number of credit unions has shifted the spotlight to a section of the savings market that most savers overlook.

Rates in the mid to high fours (even above) are on offer from four of them.

These institutions are not large by bank standards, but they do occupy a unique place in the financial institution landscape. Most are under the Co-op Money umbrella (which also includes building societies) and together account for an industry segment with over $1 bln in assets. This sector is not micro either.

They are growing fast, although lending growth at some slowed last year. Leverage rates are about half those of banks.

all 2016 unless stated Credit
Rating
Leverage
(times)
Total
assets
y/y growth   Total
lending
y/y growth
      NZ$ mln %   NZ$ mln %
               
Aotearoa Credit Union   5.1x 19.7 -6.0   14.9 +7.4
NZCU Auckland   5.1x 19.1 +8.0   13.3 +6.6
NZCU Baywide BB 7.6x 293.6 +10.4   212.5 -0.5
NZCU Central (2015)   5.2x 21.8 +15.8   14.1 +12.5
First Credit Union BB- 5.3x 324.4 +13.3   178.8 -1.0
Police Credit Union BB+ 5.6x 118.8 +9.2   60.6 -7.2
NZCU South BB- 6.1x 129.9 +4.1   107.3 +15.4
    ------ ====== ------   ===== ------
Totals for this group*   6.0x $ 927.3 +10.0   $601.5 +1.7

* There are others of course, but tend to be enterprise related.

These institutions tend to hold large residual cash reserves, making them unusual among New Zealand deposit takers.

They also don't pay tax under a unique legal provision, which also allows a more rapid buildup of reserves.

Here are their current rate offers:

for a $25,000 deposit Rating 3/4 mths 5/6/7 mths 8/9 mths 1 yr 13/18
mths
2 yrs 3 yrs
Credit Unions                
Aotearoa Credit Union   2.90 3.10 4.50 4.95 5.25 5.50 5.60
NZCU Auckland   2.75 3.30 3.40 3.50 3.75 3.60  
NZCU Baywide BB 3.20 3.80 3.85 4.00 4.05 4.10 4.15
NZCU Central   3.00 3.25 3.25 3.60   3.75  
First Credit Union BB- 3.10 3.70 3.75 3.80      
Police Credit Union BB+ 2.80 3.30 3.60 3.70 3.75 3.85 4.05
NZCU South BB- 3.00 3.75 3.80 3.85 4.20 4.05 4.20

The benchmark 'risk free' return for savers are AAA Kiwi Bonds and they return just 1.75% for terms of six months and one year, 2.00% for two years, and 2.25% for four years. Any rate above that is a premium for risk. Credit ratings are one way to assess risk.

Use our deposit calculator to figure exactly how much benefit each option is worth; you can assess the value of more or less frequent interest payment terms, and the PIE products, comparing two situations side by side.

All carded, or advertised, term deposit rates for all institutions for terms less than one year are here, and for terms one-to-five years are here.

Term PIE rates are here.

For comparison, the latest headline rate offers from banks and a couple of large finance companies are in this table.

for a $25,000 deposit Rating 3/4 mths 5/6/7 mths 8/9 mths 1 yr 18 mths 2 yrs 3 yrs
Main banks                
AA- 3.00 3.30 3.60 3.35 3.75 3.90 3.90
ASB AA- 3.00 3.55 3.35 3.20 3.65 3.90 4.00
AA- 3.00 3.30 3.50 3.25 3.60 3.85 4.00
Kiwibank A 3.00 3.30 3.75 3.50   3.85 4.00
Westpac AA- 3.00 3.20 3.50 3.35 3.65 3.70 3.80
Other banks                
BBB 2.85 3.45 3.60 3.70 3.65 3.75 3.95
Heartland Bank BBB 3.10 3.30 3.70 3.40 3.40 3.40 3.70
HSBC Premier AA- 2.50 2.80 2.90 2.90   2.90 3.00
ICBC A 2.95 3.25 3.55 3.45 3.85 3.85 3.90
RaboDirect A 2.85 3.35 3.35 3.40 3.70 3.85 3.95
RaboDirect BBB 2.75 3.45 3.65 3.65 3.75 3.90 4.00
A- 3.00 3.40 3.60 3.65 3.75 4.00 4.05
Selected fincos                
F&P Finance BB* 3.10 3.80 4.00 4.10 4.25 4.35 4.50
RaboDirect BBB 3.40 3.95 4.15 4.65 4.85 5.00 5.40
UDC BBB 3.00 3.50 3.75 3.80 3.75 3.75 3.85
  * = the only credit rating in this review that is not investment grade.  

Update: Westpac rates have been updated in the above table on Monday, April 24, 2017.

Our unique term deposit calculator can help quantify what each offer will net you.

Term deposit rates

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2 Comments

Credit Unions are an interesting entity. Having twice as much capital as banks still only means that have about 4.5% capital but when things go bad they should be able to weather the conditions better. After the big banks almost collapsed in the US Credit Unions have become extremely popular. Competitive service and higher stability seem to be the big drivers.

I think their risk weighted capital and gross capital measures are north of 10%.