BY AMY RAPP
As a credit union manager, there are many factors to consider when deciding how to manage your excess liquidity. Many credit unions face the challenge of running at a low loan to share ratio.
Letting excess liquidity, even in a low interest rate environment, sit in the overnight account without earning any yield is just not the correct strategy; you’re not going to meet your income goals. Doing this for an extended period will put downward pressure on your ROA.
However, in the eight-plus years that I have been in the credit union industry, I have seen many smaller credit unions operate in this fashion. Why? Because somewhere along the way it was suggested to them that the risk is not worth it; they were given incorrect information or have just not been educated to the simplistic strategies that are associated with putting together a basic CD ladder.
The strategy to build an investment ladder is simple to implement, avoids the need to make any market timing decisions and provides stable cash flow. Although yields have been low, a quick snapshot below will disprove the “waiting for rates to go up” mindset.