Credit Union Investing 101

The financial world has become a bit…complicated…as of late. We all know the markets have been tumultuous in the face of a pandemic, bloated balance sheets, skyrocketing rates, rapid liquidity tightening, inflation and other economic factors. So, let’s take it back to basics for a bit – let’s talk about investing 101.

For some who have been in the credit union industry for years and are well-versed in all the investment options available to you, this may serve as a simple refresher to what you already know. For others who are relatively new in the industry or have recently moved into a position that allows you to make investment decisions for your credit union, this information will provide you with some basic knowledge about the investment opportunities available through Vizo Financial Corporate Credit Union.

Let’s start by discussing three primary categories of investments available to credit unions through the Corporate: share accounts, certificates of deposit (available through both Vizo Financial and SimpliCD) and brokered investments such as U.S. Treasury bonds, agency callable bonds and agency bullets.

Share Accounts

This first category is one that most are probably familiar with – Vizo Financial’s share accounts. (All rates are current as of 1/30/2024 and are subject to change anytime).

• Premium Share Account (PSA) – The Premium Share Account (PSA) is an overnight account designed for your liquid funds not needed to cover daily transaction and/or settlement activity. There is no minimum balance requirement for the PSA and you can transfer in or out of this account on a daily basis as your funding needs change. This is an attractive option for your credit union’s liquid funds, as the rate on the PSA should be closely correlated to the federal funds rate. Current rate – 5.15%
• Flex Account – The Flex Account is a no-maturity investment that pays a higher rate while permitting two withdrawals per calendar month. Current rate – 5.45%
  • The Flex Account is a floating rate share account.
  • The rate on the Flex Account is subject to change daily.
  • There are no minimum balances required for the Flex Account, and deposits can be made anytime throughout the month. There are no minimum or maximum deposit requirements.
  • Withdrawals can be made twice per calendar month without incurring a penalty. There are no minimum withdrawal amount requirements.
  • Withdrawals in excess of two per calendar month will incur a 30-day penalty of 25 basis points on the amount withdrawn.
  • Dividends accrue daily and are posted on the last day of the month.
• Holiday Share Account – The Holiday Share Account is designed to assist in managing your Christmas Club Account more effectively. The Holiday Share Account is a floating-rate investment that earns a variable spread over the Premium Share Account (PSA). Credit unions have the option of choosing a Holiday Share Account that matures on October 1st or November 1st of each year. Current rate – 5.25%

Keep in mind that the share accounts may currently have an attractive rate, but they move in correlation to the rate set by the Federal Reserve. The Fed is widely expected to start cutting rates sometime in 2024, with current predictions ranging from a 0.75 percent decrease all the way to a 1.5 percent decrease. For credit unions looking to lock in higher rates for a longer period of time, certificates of deposit are a good place to start.

Certificates of Deposit (CDs)

Vizo Financial CDs are available in terms that range from one month through 60 months. Our CD rates change daily and can be found on our website, through our Daily Rates emails (which you can subscribe to receive from our Subscriptions page) or by contacting our investment team at investmentsales@vfccu.org. In addition to our Vizo Financial CDs, credit unions also have the ability to purchase jumbo CDs through SimpliCD.

SimpliCD allows credit unions to create a portfolio of fully-insured CDs from its nationwide network of issuers. With SimpliCD, you can purchase multiple CDs in amounts up to $250,000 per issuer at separate federally insured depository institutions based on your investment strategy. Some benefits of SimpliCD include:

• Access to rates you can’t find elsewhere.
• Purchase multiple CDs in a single transaction with no fees. What you see is what you earn.
• Receive one consolidated interest payment and eliminate the need to make multiple wire transfers.
• SimpliCD will handle any and all maintenance for you.

If you’re not already signed up to receive rate updates from SimpliCD, contact your corporate account manager or email us at  investmentsales@vfccu.org.

Brokered Investments

In addition to CDs, credit unions may also invest in other brokered investments. There are a wide variety of bonds and securities that a credit union may choose to invest in based on their unique needs and situation. For the sake of sticking to the basics, let’s look at just a couple of the more common choices.

• U.S. Treasury Securities – These are government debt instruments issued by the United States Department of the Treasury to finance government spending, in addition to taxation. Treasury securities are one of the safest investments because they are backed by the full faith and credit of the U.S. government. Treasury securities are divided into three categories according to their lengths of maturities: Treasury Bills, Treasury Notes and Treasury Bonds.
  • Treasury Bills have the shortest range of maturities of all government bonds and are issued in terms from four weeks through 52 weeks.
  • Treasury Notes represent the middle range of maturities in the treasury family, with maturity terms of two, three, five, seven and 10 years currently available.
  • Lastly, Treasury Bonds are not a popular choice for credit unions due to their 30-year maturity.
• U.S. Agency Bonds (Callable and Bullets) – Agency bonds are issued by federal government agencies, such as the Federal Home Loan Bank, Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage (Freddie Mac) and Federal Farm Credit Banks to name a few.
  • A callable bond is one that allows the issuer to redeem the value of the bond prior to the final maturity date at a prespecified price and date(s). In other words, the call feature gives the issuer an option to pay back its debt earlier. This feature is valuable to the issuer because of the additional flexibility it provides in managing borrowing costs.
  • An agency bond that is non-callable is typically referred to as a “bullet.” A bullet will typically have a specified interest rate and maturity date and cannot be called by the issuer before the maturity date. Although they do not carry the full faith and credit guarantee of the U.S. government like Treasury securities, agency bonds are perceived to carry low credit risk because they are issued and guaranteed by a government agency and carry an implied government guarantee.

If you are interested in learning more about investment options for your credit union, please reach out to your corporate account manager or contact us at investmentsales@vfccu.org.  

Roger Heidlebaugh serves as Vizo Financial’s portfolio strategist. He acts as an investment consultant for credit unions, helping them to manage their fixed income investments, jumbo CDs and deposit accounts. On the corporate side, he analyzes, monitors and facilitates liquidity funding and investment solutions for Vizo Financial. Mr. Heidlebaugh is well-versed in the financial services industry, with over 14 years of experience as a financial advisor and expertise in managed accounts, various annuities, life insurance, investments and more.