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Wondering Why Dividend Rates Change?

December 23, 2008 | Alliant Credit Union

We're often asked, "Why do dividend rates change?" especially in a declining interest rate environment. So here is a brief explanation why our rates change and what it means for Alliant Credit Union members.

  1. Market interest rates have dropped significantly over the past 15 months, which means the rates available to the Alliant Credit Union at the corporate level for "conservative" re-investment purposes have also come down. The Fed Funds rate, the short-term benchmark, has declined from 5.25% in August, 2007, to between 0 and .25% recently. Over the same time period, Alliant's savings dividend declined from 4.85% to 3.50%.
  2. Our savings dividend remains among the highest available in the nation. As of December, our rate is 3.50%, compared to less than 1% on Savings and Money Market Accounts for banks and credit unions on average. So despite a slightly lower dividend rate, Alliant still pays 3x - 7x more than the average bank or credit union rate.
  3. While some institutions may be offering higher certificate rates, caution is advised. Some are in serious financial trouble and are desperate for funds. Our operating costs are extremely low, and we return all of our earnings after expenses and reserves to our member-owners; therefore, it is likely that institutions that are offering higher rates are doing so at a loss. Also, beware of "new money" offers; at maturity, the institution almost certainly will try to rollover the Certificate at a substantially lower rate in order to earn back the premium they initially paid. At Alliant, we consistently pay high rates and don't play bait and switch.
  4. Unlike some other financial institutions which partake in risky investment options in search of higher yields, we take a more conservative approach, which has proven to be wise given the recent troubles experienced by other financial institutions.

For over 70 years, we've strived to offer consistently superior financial value. So while market conditions change and other financial institutions come and go, you can count on Alliant to remain a safe place to earn consistently strong returns.

Sincerely,

David W. Mooney
Alliant Credit Union
President & CEO

 


© 2008 Alliant Credit Union. All Rights Reserved.

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