Recently released government figures reveal what many of you already knew – Americans have rediscovered the importance of thrift. The national savings rate in January jumped to 5% after checking in at around 0% as recently as last spring. The national spending rate has plummeted by 4.3%, the largest drop in almost 29 years.

This change has been so dramatic that economists are now lamenting the “paradox of thrift”. Essentially, the argument is that even though saving more and spending less seem like smart individual decisions, widespread thriftiness can actually worsen a recession. This makes sense. If consumers are saving more money, they are spending less on goods and services. If fewer goods and services are being purchased, manufacturers make less money and need fewer workers. As more people lose their jobs, there is less aggregate income and, thus, less money to spend. As this cycle is repeated, you can see how it could create a devastating economic pattern.

My problem with this argument has much more to do with psychology than economics. It was not long ago that the news was filled with headlines like “Americans spend more than they make” and “The United States is addicted to consumerism and credit.” The media blasted us for over-spending and under-saving. Don’t get me wrong, these warnings were well placed. It is readily apparent that consumers and banks overextended themselves for much too long.

It is interesting, however, to see how much that message has changed. Consumers are now spending less and saving more, but still being criticized by economists. All the while, those who have decided to spend have found that banks refuse to loan to them. Seems like we can’t win.

The key, as we all know, is to find economic balance. We each need to save enough to be feel comfortable and to protect ourselves from unexpected life events. We need to save for retirement, education, and down payments on big purchases. We also need to live a little – enjoy life. Family, friends, love, and laughter are assets that no balance sheet can classify, but they are vitally important nonetheless. We must keep our heads about us. Moderation, wise use of credit, and thoughtful budgeting go a long way in helping families avoid the potential risks of economic booms and recessions.

Members Credit Union was formed to promote thrift among our membership and to provide an affordable source of credit for provident and productive purposes. Thanks to sound investing, strategic planning, and increased member savings activity, we have never been in a better financial position in our fifty-six years of operation. Unlike banks, we are able and willing to lend and continue to seek ways to help borrowers meet their needs. We have lowered loan rates dramatically in recent months, and continue to offer among the best deposit rates you will find on the marketplace.

While other financial institutions are clamping up operations, we are committed to making this one of our most successful years ever. Take our Invest in America program for example. We are offering huge financing specials on new American-made vehicle purchases, not to mention members-only manufacturer discounts and rebates that could save you thousands of dollars on your vehicle. Look at our “What are you saving for” program that for the last year has helped hundreds of members become better savers and smarter consumers. Not only are we still passionate about helping members in this time of need, we are eagerly creating new ways to succeed in that mission.

So, keep saving. We can help you with that. Want to borrow? We can help you with that as well. Need financial advice? Let us know. Take comfort in our financial strength, and tell your family and friends to do the same.

When I started this blog last year, I had no idea what kind of response it would get from members. Would people visit? Would they comment? Would this turn into a center for discussion, or a public complaint board? No matter what I encountered, I reasoned, this little piece of the internet could be considered a success if members saw it as a legitimate attempt for Members Credit Union to host transparent, public discussions about their credit union.

I could not have dreamed that it would be so well received. I receive comments every week - some private, some public. All of them, however, have shown great respect and appreciation for what we are trying to accomplish with “Ask Jack”. During this time of corporate secrecy and public distrust, it’s nice to know that members see us for what we are: a member-owned financial cooperative committed to adapting to our members’ constantly evolving needs in an honest, and transparent way.

What has really made this initiative special from a personal standpoint is receiving comments like the one from Mr. Larry Creasman that showed up in my inbox this morning. Larry said:

“Hey there just wanted to comment the branch in Morganton, NC! One of my jobs is located in Morganton, and I frequent that branch quite a bit. You need to commend the staff at this branch! Every time I have ever walked in the staff showed respect and patience to my banking needs… As a property manager for an apartment complex I understand the importance of good customer service regardless of the service being provided. I usually don’t take the time to provide input about the service I receive at businesses, but I truly feel like this branch deserves a big thank you from your office! I appreciate your time in reading this and hope you enjoy your week!” - Larry Creasman

You can be assured, Larry, that your note will be shared with all of our employees - especially Rhonda and Jerry at our Morganton office. The experience you enjoyed in Morganton has been our goal since we opened our doors in 1953. Thank you for your note, and for the reminder of why we are in business.

Today’s “Ask Jack” question comes from Judy in Lenoir, NC:

“Does Members Credit Union award college scholarship money. If so, how do we apply?”

- Judy, Lenoir

Thank you for your question, Judy! This gives me the perfect opportunity to discuss one of my favorite service initiatives.

Members Credit Union’s Scholarship Program was established in 1996 to help members afford post-secondary education. To date, we have awarded more than 125 academic and need-based scholarships to members throughout the country. Last year alone, nineteen members were awarded with a total of over $22,000!

Annual awards are highlighted by the John R. Loftin Scholarship and the Daniel H. Elkins, Jr. Scholarship, named in honor of each man’s tremendous contributions to Members Credit Union over the years. In 2008 Megan M. Smith of Valdese received the $3,000 John R. Loftin Scholarship to help finance her Appalachian State University education. Andrew W. Foote of Morganton received the $2,000 Daniel H. Elkins, Jr. Scholarship for his studies at Georgia Tech University.

Scholarship applications for the 2009-2010 school year must be received by February 20, 2009. Eligible applicants must be Members Credit Union members, and enrolled or plan to enroll full-time in an accredited college or university. Applications are available on memcu.com or by clicking here.

Best of luck with your college plans, Judy. We look forward to the opportunity to help in any way that we can!

Today’s Ask Jack question explores the rate environment, and how Members Credit Union sets its rates.

Why when the Federal Reserve has hit historical low lending rate of 1% that the credit union raises their lending rates CAR 6.25% Best vs last months of 6.0% and the unsecured credit line 12.5% vs last months 11.75% it seems they are moving in the wrong direction. I would think at the least to stay pat.”

- Loren W.

To answer this question let’s first start with an explanation of what the Federal Reserve Target Rate (FFTR) is and what it is not. The FFTR is actually not even a rate at all. It’s is a target. The Federal Reserve’s twelve regional banks, after setting aside a mandatory level of deposits, makes overnight or short-term funds available to financial institutions to cover the ebb and flow of daily expenses (and, more importantly to meet mandatory reserve limits). The rate on these loans is determined by market conditions, which the U.S. Federal Reserve manipulates (via the buying/selling of treasuries, adjustment of reserve requirements, etc.) to meet the target rate. These bank-to-bank loans are as close to risk-free as loans can get. This is because these loans are: a) Extremely short-term, often paid back in full within several hours; and b) Extremely small in relationship to the borrower’s (a bank with millions of dollars on deposit) ability to repay.

This distinguishes overnight bank-to-bank borrowing from traditional consumer borrowing quite dramatically. That said, many financial institutions use the FFTR as an index by which they determine certain consumer loan rates. Take the “prime rate”, for example. Many consumers with home equity loans have a rate tied to “prime”. “Prime” is generally three percentage points higher than the FFTR. So, if the FFTR is 1%, “Prime” is typically 4%. If you have a home equity line of credit for “prime plus one,” then your rate is 5%.

Different types of consumer loans, though, are tied to different indices. First mortgage and student loans, for example, are often tied to the behavior of treasury bond yields. Because changes in FFTR do no necessarily affect treasury bond yields, these rates move up and down independently from the FFTR.

A component of the rate we attach to Members Credit Union’s unsecured variable-rate loans is tied to the 2-year Treasury note (T-Note). Each month from March 2008 to June 2008, 2-year T-Note yields actually increased. The good news is that since then, we have seen a marked decrease in that index. We expect this trend to continue, which will mean a likely rate reduction on unsecured variable rate loans when they are next adjusted January 1, 2009.

Secured, fixed-rate loans such as automobile loans are set by our rate committee based on market factors such as competitor rates, member demand, and our balance sheet. Historically, we have maintained extremely competitive rates. For example, the national average 60-month new automobile loan rate is currently 7.19%, while the national average used automobile rate is 7.67%. Our current rate of 6.00% on both new and used automobile loans (with 20% down and automatic payments through an MCU account) compares quite favorably to these figures, especially when you consider that the above national average rates assume a minimum credit score of 700.

Members Credit Union returns earnings to members in the form of lower loan rates, higher deposit returns, fewer and lower fees, and improved service offerings. This philosophy has mandated that our rate sheet gives members the best possible prices on loans and deposit products we can possibly offer. We spend a great amount of time and energy creating this scenario for members, and I couldn’t be happier with the results. Across the board, we are confident that our rates and fee schedule, combined with our branch footprint and service offerings, are the best deal possible for members.

I recently received two questions with a similar theme:

My 403 b is losing money. i am putting in the max. amount right now w/ employer matching. am i better off leaving this alone or should i not put in the minimum and put the rest in cd’s? does the match make up more than the loss incurred by the deprived economy? it is time to recommit for next years benefits and i ‘m not sure the best route to take. thanks! 
- Joel

My question has to do with 401k employer plans. With the current financial crisis the balance continues to drop. Some have taken the money out ‘for the time being’ until things calm down, others are riding out the storm. If the worst occurs, and your balance goes to $0 ‘on paper’ , do you still own the ’stock’ that the funds were invested in? And do you just wait and hope the ‘value’ of the stocks come back and grow in value again? Or would it be wise to take the money out and then re-invest at a later date when markets calm down? I am 50 years old and have only been in my current employers 401K for 2 years.
- Paul

Current economic conditions have dealt many, if not all, Americans serious losses in their investment portfolios. While Paul is correct in saying that much of these losses are only “on paper,” this is of little consolation to investors who are nearing or in retirement. The key considerations here are risk tolerance and investment expectations. Are you the type of person who wants huge returns and are willing to stomach the risk associated with that type of investment? Are you someone who wants to see smaller, but more predictable gains – following the slow and steady wins the race mindset? Are you somewhere in the middle of these two categories?

At Members Credit Union, we partner with MEMBERS Financial Services to provide investment services and advice to our members. I encourage all of you to give Richard Davis a call at 800-951-8000, x111. He would be more than happy to help you evaluate your own risk tolerance, and guide you through the investment process.

One investment that I absolutely know is wise is the employer match portion of your 403(b) or 401(k) plan. Even if you are totally adverse to risk, there are typically investments under these plans that are safe, fixed income options to offset your fears. Regardless of their actual returns, an employer match is a 100% investment right out of the box. It typically pretty wise to at least put enough aside in these plans to take advantage of the employer match.

Certificate investments are always a good idea because they provide a fixed return over a set period of time. While this is a conservative option, certificates (especially those at Members Credit Union) can provide a very high return. For this reason many people choose to make certificate investments a prominent part of their portfolios. Your personal investment style should dictate what percentage of your investment activity should be allocated to this kind of option.

Lastly, to address the individual stock question, I want to point out what mutual funds are and what they are not. Mutual funds managers invest in individual stocks, bonds, and other investments to create as predictable of an investment option possible. The percentage each of these funds allocates to various investment vehicles dictates the risk levels of these investments. A good manager diversifies these funds in such a manner that if a portion of the funds’ investments lose money, there are other investments within those funds that offset or counteract those declines. So, even if a fund invests in a stock (to follow Paul’s example) whose value drops to zero, the likelihood of the entire fund dropping to zero is almost 0%.

The key is to not panic – as hard as that may be. I don’t know what will happen with the market. Anyone who tells you that they do is lying. What I do know is that panic makes people sell low and buy high. That is the opposite of what conventional wisdom dictates.

Thank you for your questions, and make sure you call Richard Davis at MEMBERS Financial Services for a free consultation – another free service brought to you by your friends at Members Credit Union.

William,

Thank you for your question! Transparency in our decision-making is extremely important to Members Credit Union. We appreciate this opportunity to display that principle.

We offer separate cards to make sure that all members, no matter what their account relationship with us may be, have as much access to their funds as possible in the most cost effective way possible for the credit union. Our current, three-card lineup provides the perfect balance between convenience, cost effectiveness, and consumer protection.

The VISA Credit Card allows members to access an MCU unsecured line of credit. The MCU Cash Card provides members who do not have a checking account to access their funds fee-free up to two times per month from ATMs. The Cash Card also provides access to your checking account with PIN-based (”debit”) transactions at retailers and ATMs. The VISA Debit Card allows an unlimited number of fee-free ATM transactions AND unlimited fee-free purchase transactions. ATM withdrawals are PIN-based transactions, while purchases are signature-based (”credit”) transactions. The VISA Debit Card is only available to members who have MCU checking accounts. MCU members with checking accounts can do everything with their VISA Debit Card that SECU members can with their card with the exception of the “cash back” option in check-out lanes. Only members who find the “cash back” option necessary will need to carry two cards.

The long answer is this:

Members Credit Union offers three different plastic account access cards: a VISA Credit Card, an MCU Cash Card, and a VISA Debit Card. These all have their unique uses, which I will now explain:

Our VISA Credit Card is exactly what it sounds like. It allows members access to an unsecured credit line anywhere VISA is accepted. When the card is used for a purchase, the balance on the associated account increases. This, likewise, increases the minimum payment and interest charges for which you are responsible to repay. This is a signature-based card, meaning that when it is used you must select the “credit” option at the point-of-sale (cash register, terminal, etc.). 

I explained much of the usage differences between the VISA Debit Card and the MCU Cash Card on my post “Cars, Cards, and Laundry Detergent,” but let me describe the differences in an alternate way here:

The MCU Cash Card is a PIN-based card. This means that you must enter a PIN for Cash Card transactions to process. This card was intended to give ATM access to members without a checking account (and, thus, do not have a VISA Debit Card). Members can used these cards at thousands of surcharge free ATMs across the state at no charge up to twice monthly. There will be a $1.50 charge for each additional transaction to help offset the credit union’s cost of this service.

For members with an MCU checking account, the MCU Cash Card can be used fee-free for point-of-sale purchases. Remember: you must use the “debit” selection and enter your PIN, as this is a PIN-based transaction. Members are subject to daily, cumulative transaction limits, however. Please check with your nearest MCU representative for more on that. Because the MCU Cash Card can also access your checking account, some members use this card at a point-of-sale to take advantage of the option to get cash back from the transaction. This is only available with our Cash Card and the “debit” selection.

Our VISA Debit Card is available for members with MCU checking accounts. This card provides members with unlimited fee-free ATM transactions from surcharge free ATMs. Our debit card is PIN-based when used at ATMs, and signature-based when used at point-of-sale locations. This means that when you use your card at an ATM, you will be required to enter your 4-digit PIN to complete the transaction. When you use your debit card at a point-of-sale, you will need to select the “credit” option at the terminal.

There are two very important reasons our debit card is used in this way: 1) Signature-based transactions on the VISA network provide consumers with what are called “chargeback rights”. Chargeback rights essentially give you the ability to appeal, through Visa, for a reversal of any charge if it meets certain criteria. This ability to dispute charges, with the backing and power of Visa, gives members comforting consumer protection that is unavailable with PIN-based transactions. 2) Each signature-based transaction provides Members Credit Union with a small revenue source called interchange. Interchange is paid by the retailer to cover the costs of providing the transaction approval technology behind each card acceptance. This income, though not paid directly by members, allows our credit union to keep member loan rates low, deposit rates high, and our fee schedule as member-friendly as possible.

Members Credit Union has a big announcement to make! Today we are launching our own economic stimulus package for our members – one we call the Holiday Skip-a-Pay Program.

When times get tough for our members, we notice…because we’re members too. So, this November and December, we are going to allow members to delay their loan payment by a full month. This includes all non-mortgage-related loans.

There is no fee whatsoever attached to this program. We will simply change the due date on your next loan payment and extend your loan term by one month. Just a helping hand to help you during this turbulent economic time.

We want to make sure your holiday season is filled with family, friends, and joy – not financial worry. So, if this program will help your family out, simply call your nearest branch manager to get started. You may also contact our main office at 1-800-951-LOAN or “loans at memcu dot com”.

We have been proving the credit union difference since we opened our doors in 1953. This program highlights, yet again, why your Members Credit Union membership is so special. Thank you for your continued membership and support – and make sure you tell your friends and family that Members Credit Union looks out for its members.

Members Credit Union’s marketing department has developed an extremely simplified view of what led to the current credit crisis. Obviously omitted were discussions of the derivatives market, insurance programs, and specific investment practices. This was intentional. While we realize that these were factors that exacerbated the problem, it was imperative for us to get to the root of the credit crisis: sub-prime lending. This presentation was heavily inspired by NPR’s This American Life, which we definitely recommend.

This presentation has been performed for various employers and members of Members Credit Union, and is available for free in DVD form (quantities limited). If you are interested, send me a message. Otherwise, please enjoy the following video and share with anyone you wish: