More than a thousand members must withdraw money from Derry Credit Union due to new savings cap

More than a thousand people have been told that they must withdraw money from their accounts at Derry Credit Union.

At present, the maximum amount of savings that someone is allowed to have in their account with the local credit union is £20,000.

However, from the end of April, that amount is being reduced to £15,000.

As a result, the 1,052 people who have more than £15,000 in their accounts with Derry Credit Union have received letters in recent days informing them that they have to withdraw any amount over £15,000 from their accounts by April 30.

The exact total of money that will be withdrawn has not been revealed.

However, if all those affected by the change in policy currently have the maximum £20,000 in their accounts, it could mean up to £5m being transferred out of the local credit union in the next few weeks.

The savings cap at Derry’s two other credit unions. Pennyburn Credit Union and Waterside Credit Union, are also both currently £20,000.

However, it is not known if there are any plans to reduce the savings cap at these two credit unions.

In the letter recently sent to the affected members of Derry Credit Union, a representative of the Bogside-based credit union said that members were first notified last November of the new £15,000 cap on savings, which are referred to as ‘shares’ by credit unions.

“Derry Credit Union must generate income to pay for the services provided, including members’ dividend and interest rebate,” the letter states.

“Our main source of income is the interest we charge on members’ loans.

“Since 2010, our loans have decreased from £41.6m to £30.6m and our shares have grown from £70.6m to £83.2m.

“We welcome this display of confidence by our members in our financial strength.

“However, due to the very changed regulatory environment in which Derry Credit Union and credit unions around the country are now operating, there are downsides to such an increase.

“Under financial regulations, we must maintain reserves of at least 10% of our assets. Reserves are what protects the credit union from risk.

“The credit union’s reserves are taken from the credit union’s yearly surplus. Member’s dividend is also paid out from the yearly surplus.

“The challenge facing us is that if shares continue to rise at their current levels, the funds available to pay dividends (if a dividend can be paid at all) at year end may be significantly reduced.”

The letter continued: “In order to meet members’ needs and expectations and to ensure that all members are treated equally the Board of Directors have agreed that a cap of £15,000 on shares will apply to all members.

“While we are working hard to ethically grow our loan book, the return of excess shares is one action that can be taken now; which affects 1,052 members out of a membership of 30,304; and which will have an immediate, positive effect on our reserve position.”

The credit union’s letter said the £15,000 cap was a ‘temporary measure’ which would remain under review by its Board of Directors and could be reversed in the future.

The letter says that any money over the £15,000 can be transferred to a bank account or withdrawn from the credit union’s premises in the Bogside.

It adds that anyone who has surplus amount in their account come April 30 will be sent a cheque for the surplus amount.