It's as simple as Business 101. Cut costs and you can boost profits.
When the business is a credit union, profit means putting money in the pockets of members. That approach has allowed Rutherford District Postal Employees Federal Credit Union to reach upper tiers in paying savings rates, currently 2.52% APY.
That may sound modest, but in today's environment it is enough to land the credit union in the top three financial institutions on bankrate.com's savings interest ratings. Ask Howard Bernier, the treasurer, how the credit union accomplishes that and he has a quick answer. Keep expenses down.
"We're a small, $8 million credit union that doesn't have a lot of overhead," he points out.
That philosophy runs counter to conventional wisdom that insists in order to survive today a credit union must offer an extensive range of services and a long list of convenient locations.
For starters, the credit union, which opened in 1937, suggests a credit union that still reflects the era when for many credit unions a shoebox was large enough to house receipts and a padlock on a fishing tackle box served as a safe.
The payroll at Rutherford Federal could be described as limited. Bernier is the only employee. Office overhead is also low-cost, since he operates out of his home. Drive-through window and mortgage department? Forget it.
"We're a small credit union that makes signature loans and car loans," Bernier explained. "Comparing us to a large credit union would be like comparing us to Bank of America. It's just not possible. We're not a full-service credit union. We don't offer share drafts. We don't offer credit cards. We're pretty vanilla. But what we do, we do well."
At a time when bigger is considered better, Rutherford Federal has decided to stay small. There are less than 500 members, all employees of the Rutherford, N.J., post office or their immediate families. That's it. No lengthy list of SEGs, thank you.
There's also a limit on the amount of money members can put into the credit union. Deposits are maximized at $5,000 each calendar quarter, and nobody can have more than $80,000 in Rutherford Federal.
"The average is well below that," Bernier noted. "Our loan demand has been very low over the last two years. We've been more of a savings institution than a lending institution, and I wish we could reverse those trends. But we're not looking to make bad loans just for the sake of making loans. We do deny a lot more loans than we did 15, 20, 30 years ago."
What about maintaining those currently above-average savings rates?
"We basically return all of our income to the membership," he said. "We keep our net worth above where NCUA wants us to be, and every dollar we take in above that each quarter gets returned to the members in dividends. Our dividend rate has been coming down over the last seven, eight, nine years, but it's still well above market rates."
"It will continue to come down because basically what we do is turn around and buy jumbo CDs with the money we don't have out in loans. You're lucky if you get 1%, 1.25% on five-year CDs."
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