The investment income drought continues.

Wall Street cheers each interest rate cut from the Federal Reserve. Stock and bond prices rise and everything seems hunky dory.

Except for one thing.

There are people out there who need income from their investments. These folks shudder each time rates are cut and wonder how they will pay their next electric bill, put gas in their car, or keep up with their credit card billing.

What do you do if you happen to be one of those people?

Learn about credit unions.

Nationally, there are now 10,684 credit unions with nearly 80 million members. More important, they hold some $450 billion in assets and are enjoying a surge in member deposits.

One reason: higher yields on deposits. These aren't just slightly higher yields, either. We're talking about a difference that will make thousands of people give serious thought to walking across the street with their money. On short term CDs, for instance, I found that Credit Unions were paying more than 100 basis points more than the average bank CD. They also beat Treasury yields and yields on all brokered CDs except the 5-year maturity. You can see the differences on the table below where average yields on regular CDs, brokered CDs, and Treasuries were taken from the website and average yields on Credit Union CDs were taken from the Bank Rate Monitor website.

Credit Union CDs versus Bank CDs and Treasuries

Source 3 months 6 months 12 months 2 years 5 years
Credit Unions 4.45% 4.77% 4.94% 5.06% 5.33%
Brokered CDs 4.16 4.27 4.44 4.96 5.74
Treasuries 3.59 3.69 3.70 4.29 4.99
Bank CDs 3.30 3.48 3.63 3.97 4.41

Sources: , , May 17, 2001 (Bold type indicates top yield)

We're talking real money here. One indicator is my long running Bankers' DOG index, a weekly comparison of average bank CD rates with comparable maturity Treasury yields. I started this exercise years ago when the gap regularly averaged 100 basis points--- a full percentage point. A $50,000 Treasury portfolio regularly earned $500 a year more than a similar portfolio of bank CDs.

No more. As interest rates have declined the gap between bank CDs and Treasuries has become a sliver. Last week it was $125 a year. The average gap so far this year has been only $87. (You can check this exercise on my website at

Now we have a monster gap between bank CD yields and credit union CD yields. Indeed, it computes to a whopping $576 a year on a $50,000 portfolio.


So what's the trick?

There is none.

• Like your bank deposit, your credit union deposit is insured. More important, the insurance has the same backing.

• Like your bank, your credit union is profitable but by a slightly smaller amount, 1.02 percent to 1.19 percent in 2000.

• Like your bank, your credit union has equity capital; only it has more--- 11.14 percent of asset compared to 8.49 percent for the average bank.

• Like your bank, your credit union has delinquent loans; only it has fewer--- 0.74 percent compared to 1.14 percent. Indeed, the delinquency rate at credit unions has been lower in 13 of the last 15 years.

Want to learn more? Then check these websites:

Bank Rate Monitor- lists average credit union CD rates provides a search engine

Q&A about Credit Unions

Credit Union National Association

CUNA statistics and reports