We understand that many members would like higher deposit rates. Unfortunately, due to the weakness of the economy, it is unlikely that interest rates will increase through mid 2015. In September of 2012, the Federal Reserve Bank stated that it expects weak economic conditions to warrant “exceptionally low levels for the federal funds rate … at least through mid 2015”.
PFFCU has approximately $1.3 billion of investment funds or excess member deposits sitting at the Federal Reserve Bank earning the federal fund rate of 0.25%. Because our members have more deposits with PFFCU than loans, every new dollar members deposit is currently added to our holdings at the Federal Reserve Bank earning 0.25%. We are very conservative when investing our member funds, choosing only government guaranteed investments with less than a 2-year maturity. These guaranteed investments only yield between 0.25% and 0.50%.
The reason PPFCU deposit rates’ are low is that our rates are driven by the Federal Reserve Bank’s rate, which are currently being held exceptionally low. The Federal Reserve is keeping interest rates low in order to discourage consumers from saving and encourage consumers to borrow and spend, hoping to stimulate economic growth.
Since 2009, the Federal Reserve Bank’s economic growth strategy has driven down the yield PFFCU can earn when making investments and, correspondingly, impacted PFFCU’s deposit rates. Historically, our average Certificate rate has equaled our average yield on investments so that PFFCU passed through all of our income from investments to members in the form of higher Certificate rates.
PFFCU helps members by offering the best longer term Certificate rates. PFFCU’s two to five year Certificate rates range from 1.0% to 2.0% APY. Our five year Certificate rate has consistently been one of the best in the entire country since 2009. Because of the impact of falling interest rates on savers, PFFCU has always encouraged members to use longer term Certificates to “ladder” their funds rather than keep all of their money in the Premium Yield Account or short term Certificates. (Laddering means spreading your Certificate purchases over different maturities.) This strategy protects members if interest rates fall while also ensuring that some funds come due each year if interest rates increase.
Finally, while PFFCU’s deposit rates are historically low, so are PFFCU’s loan rates. Our five year auto loan rate is 2.24% and our 15 year 1st mortgage rate is 3.25%. Since 2009, PFFCU saved members millions of dollars by refinancing their mortgages at record low rates.