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Why do Manitoba credit unions give rates that good?
January 30, 2018
7:46 am
goldenhawk
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Is it just because they are more risky?

January 30, 2018
7:55 am
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Got any proof that MB online CUs " are more risky"? or were you just spit-ballin'?

January 30, 2018
8:02 am
Bill
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I think the question is valid, i.e. why is it that many of the fi's that perennially rate at the top of savings and GIC rate charts are located in Manitoba?

January 30, 2018
8:14 am
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I don't know the answer BUT you have to remember those rate offers are from online subsidiaries of MB bricks and mortar CUs (if you look at the parent company rate offerings you'll see they're dreadful.) They are near the top for GIC rates BUT they don't very often lead the way and certainly never lead the way with HISA rates.

There only seem to be CUs from 2 provinces active in the online game and that's MB and ON - nothing from AB, BC, or SK or the east coasters that I can see.

January 30, 2018
8:37 am
Yatti420
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Banks/CUs attract deposits.. Money gets loaned out etc for mortgages etc etc etc etc within the federal/provincial and maybe intl guidelines set forth..

With the way the big 6 are setup pretty much attracting deposits ranks about as highly as making sure we charge you a monthly fee lol

I'm happy to have the choices versus not having them..

CU Top 100 : https://ccua.com/~/media/CCUA/About/facts_and_figures/documents/Largest%20100%20Credit%20Unions/top100-2Q17_2-Oct-17.pdf

January 30, 2018
8:40 am
Bill
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True, it's usually the GIC rates, but I guess the other part of the question is why do Manitoba CU's seem to court, via their online subs/divisions providing a higher online profile, business from the country at large? No-one ever hears about Saskatchewan CU's, or Maritimes or Alberta CU's, and so on, i.e. CU's elsewhere seem to garner deposits more as locavores, from their immediate communities. What's up with Manitoba? In the absence of any other factors it's reasonable to consider it might be the usual reason rates are higher, i.e. the risk (for known or unknown reasons) is higher.

January 30, 2018
8:43 am
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YET, there haven't been any failures to prove that out!

January 30, 2018
8:46 am
Yatti420
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Don't forget agriculture etc.. The Manitoba Deposit Insurance Corp (or whatever they are called) has good info on whats going on within their realm etc..

January 30, 2018
10:18 am
goldenhawk
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I was not saying that they actually are more risky, but usually borrowers that pay more interest have a worst credit. It's financial mechanics.

January 30, 2018
10:34 am
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ALL of the MB online CUs, shown in the Comparison Chart, are ranked within the top 70 credit unions in Canada, with assets ranging from $500 million to $5.5 billion.

January 30, 2018
11:13 am
NorthernRaven
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Bill said
In the absence of any other factors it's reasonable to consider it might be the usual reason rates are higher, i.e. the risk (for known or unknown reasons) is higher.  

If there were unknown risks, they wouldn't prompt a need for higher rates, since the target customers wouldn't know them. If there were known risks, you'd just have to ask some of the many Manitobans who save with CUs why they are putting their family finances at risk.

Credit unions have been generally required to limit their bricks and mortar customer base to residents of their province. I've never been able to confirm it, but I suspect that for whatever reason, the Manitoba regulators haven't discouraged the online outreach to the rest of the country, whereas other provinces may have been formally or informally less enthusiastic.

Also note, if you offer higher interest rates but are lending at similar rates, your interest margin is reduced, and you have to ensure your operations are designed to sustain this. There's a measure called the efficiency ratio which measures operating expenses over interest income and a couple other factors.

January 30, 2018
11:26 am
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Funny, I was just looking at the Efficiency Ratio for Assiniboine Credit Union (parent of Outlook Financial) then I read this definition

Efficiency Ratios for Banks

The efficiency ratio also applies to banks. For example, a bank efficiency ratio measures a bank's overhead as a percentage of its revenue. Like the efficiency ratios above, this allows analysts to assess the performance of commercial and investment banks.

For a bank, an efficiency ratio is an easy way to measure the ability to turn assets into revenue. Since a bank's operating expenses are in the numerator and its revenue is in the denominator, a lower efficiency ratio means that a bank is operating better. It's believed that a ratio of 50% is the maximum optimal efficiency ratio. If the efficiency ratio increases, it means a bank's expenses are increasing or its revenues are decreasing.

--------------

In the case of ACU, their Efficiency Ratio "improved to" 70.7% in 2016 from 76% in 2012.

In the case of Cambrian Credit Union (parent of Achieva Financial) their Efficiency Ratio was 55.08%, in 2016.

January 30, 2018
11:52 am
Saver Guy_2018
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The answer to this question is very simple. It's because they want the business!!

January 30, 2018
12:23 pm
Bill
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NorthernRaven, your suspicion in your 2nd paragraph makes sense to me, that might be it. Also, I believe Manitoba has a government-run car insurance system so maybe Manitobans tend more toward of an anti-Big FI sentiment.

Saver Guy_2018, what you say doesn't explain why Manitoba CU's would be more keen to get our business than those in other provinces.

January 30, 2018
12:38 pm
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I don't know about what influence MPI has on the psyche of Manitobans BUT there ain't a lot of love for the Big Smoke, west of the MB/ON border.

I know CUs are active in the rural communities and looked on as more farmer-friendly than the Big 5, and maybe that carries forward with rural kids who gravitate to bigger MB communities when they come of age.

January 30, 2018
12:43 pm
Saver Guy_2018
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Hello Bill, perhaps the other FI's and CU's in the other provinces outside of Manitoba don't want the business. This is why their interest rates are lower compared to the others at this time.

January 30, 2018
1:10 pm
NorthernRaven
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Saver Guy_2018 said
Hello Bill, perhaps the other FI's and CU's in the other provinces outside of Manitoba don't want the business. This is why their interest rates are lower compared to the others at this time.  

Savings and GICs aren't business, they are a funding source - money is made from loans, and the Manitoba CUs aren't doing that outside the province. Presumably they can put to use more money than they can obtain from domestic sources, even at relatively high funding costs. It is difficult to see why Manitoba should be unique in this, which is why I suspect some sort of regulator influence was partly at work, but in any case the Manitoba sector has evolved this over many years.

Anyone who wants to noodle around with this stuff may want to take a look at an annual report that someone does on the credit union sector analyzing and summarizing their annual reports. You'll notice that Manitoba credit unions, notably Crosstown and Cambrian, tend to be near the bottom on interest margins, but near the top on efficiency ratio.

January 30, 2018
2:20 pm
Bill
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Hello Saver Guy, I get that, attracting money via higher rates is stating the obvious. Can you explain why Manitiba's CU's "want the business" while CU's in other provinces don't, why one province is different from the rest, is the question we're asking here.

January 30, 2018
3:57 pm
Loonie
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It is my understanding from friends who live in MB that doing your banking at a CU is almost normative in MB. In other words, they are the primary banking system of Manitobans. No doubt someone can find some stats on this but I remember reading some time ago about the proportion of MB banking business which was with the CUs. It seemed to support this point at that time. So, my impression is that it's a reflection of MB banking culture, which likely has significant historical roots and has proven itself over time.

As NorthernRaven noted, all the lending from the MB CUs is to MB concerns. I think this may be a regulatory requirement. The province has a small population and a lot of land. So, the rest of us are providing some extra dollars to support MB borrowing. I imagine we are still a small proportion of the whole, but have not confirmed.

Seems reasonable to me. And I am happy to know that my dollars are staying in Canada when I place them in a MB CU.

To me, the fundamental question is not why MB CUs (online) pay so well. I think that's a reflection of what I said above plus the low cost of operation. DUCA and Meridian, for example, maintain lots of bricks and mortar in very expensive real estate zones, and are not usually competitive with MB CUs.

The question that I find fascinating is why so many people continue to keep so much money in Big 5 which pay them next to nothing or nothing at all when they could do so much better elsewhere - and not just at MB CUs.

The other day I recommended to someone that an account at Meridian might suit their needs (they want local bricks and mortar) and the first response was to wonder what Meridian was and whether their money would be safe. I guess we've all been taught to be suspicious of "something for nothing" with the admonition that "you get what you pay for" etc., so the first response is often suspicion - which leaves the Big 5 laughing all the way to... their vaults!

By the way, there have been other thread(s) on this topic which may be worth reviewing for people who want more ideas.

January 30, 2018
4:32 pm
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While I keep the big money in MB credit unions I also keep between $5,000 - $20,000 in my BIG 5 account for daily living and travel - for me CUs do lag the BIG 5 in offerings that matter to me, for my lifestyle.

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