Connemara Credit Union – Share Cap
Questions and Answers
Why are you limiting/imposing a savings cap?
The Board of Directors of Connemara Credit Union took the difficult decision to limit savings to €30,000 per member account after a significant increase in the number of cash deposits 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 of savings, we must allocate €100 from our surplus / profits to our Capital Reserve, and this can have the effect of depleting the amount available to pay a dividend at year end and roll out new services to members.
We also face the challenge of a low interest rate environment which is greatly reducing the investment income that Connemara Credit Union earns on its deposits. Due to the high level of on demand savings held by the credit union, over €18million of excess funds must be placed in investments, for which we are receiving a very low or zero interest rates. In some cases we are charged negative interest rates by the banks when we deposit our surplus funds with them. 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 approx. 130 member accounts in total which is less than 2% of total membership.
What is the saving restriction? The credit union now has a saving restriction of €30,000 per member account. Existing savings above €30,000 already in place can be retained but new savings above this limit can no longer be accepted. Joint accounts can hold €60,000.
What about members with savings under €30,000?
If the member has less than €30,000 they are free to increase it to this amount, but to no more beyond this level. Members who reach €30,000 in savings will be prevented from making further deposits until the balance on their account falls below €30,000 (this will apply to all cash, cheque and EFT transactions).
Please take note of your current balance and ensure that it does not exceed the €30,000 limit on savings. You may find out your current savings balance by contacting the credit union directly or by registering for online banking.
What about members with savings above €30,000?
This limit will apply to new savings only. Existing savings above €30,000 already in place can be retained but new savings above this limit can no longer be accepted.
How long will the cap last for? The Board of Connemara Credit Union will keep the savings restriction under constant review, if they make any decision to change the current cap, 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. Connemara Credit Union is adequately capitalised with assets of €28M and a Regulatory Reserve of 10.8%.
Each time our savings increase, we have to 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? Last year Connemara Credit Union paid a dividend of .03%, and an interest rebate of 7.5% to members. While it is too early this year to determine what rate of dividend if any we will pay out, we will be communicating with members directly to inform them once we are in a position to do so.
Are my savings safe here? I can assure you that your savings remain safe and secure at Connemara Credit Union. We are a financially strong and stable credit union with adequate capital reserves.
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? Connemara 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 cap. We continue to provide valuable loan services to the local community.