The Washington Post incorrectly reported yesterday that federal credit unions are restricted to paying 6 percent interest on regular accounts. The correct figure is 7 percent.
Credit Union depostitors have been withdrawing their savings at higher than average rates, looking for more lucrative investments and prompting credit unions to limit their lending, according to area credit union officials. c
"It's not a hard thing to figure out. Obviously there are some high interest rates out there, and high rates beg people to move their money," said Donald Beall, general manager of the 18,00 member National Aeronautics and Space Administration federal credit union.
Beall said the NASA credit union is limiting loans to borrowers facing emergencies.
Funds previously deposited in credit unions, savings and loan associatons and other institutions have begun to ebb away as small investors look for savings instruments that pay higher interest rates such as certificates of deposit and money market certificates.
To find money to put into high yield investments, interest shoppers have also begun to borrow against existing certificates of deposit and life insurance policies and to redeem certificates of deposit early in spite of penalties.
One area banker told of a customer who borrowed $100,000 against the cash value of a life insurance policy at a 5.5 percent interest rate. The customer then reinvested the borrowed money in a six-month certificate of deposit paying 14 percent interest.
Federal credit unions, restricted to paying 6 percent interest on regular accounts by federal regulation, have watched their customers take their money elsewhere.
"On a national level, we don't really know what the shape of things is, although we have a feeling the flow will be generally outward in October," said Robert Dugger, director of the office of policy analysis for the National Credit Union Administration, which regulates federally chartered credit unions.
Dugger also said the credit unions' constriction of lending is nationwide and part of an expected response to Federal Reserve monetary tightening."
Some examples of what that means locally are loan limits on auto loans for customers at the Giant Food credit union, lower loan ceilings at the Washington Federal Telephone Credit Union, and a decreased maximum amount that borrowers from the Navy Federal Credit Union may have outstanding -- down to $10,000 from $20,000.
"We're sticking with the credit union principal of giving preference to smaller loans," said a spokesman for the Navy credit union, the largest in the nation. "We put on loan controls to damp down the demand for loans because members aren't saving as fast as they're demanding loans."
The good side of the credit union situation is "this is one of the ways we can help turn inflation around," said Beall of the NASA credit union. "We're losing some money. It's going to a multitude of things. You can't blame someone for going after the higher interest rates," he said.