David Savoie, CEO, LaCorp
The Federal Open Market Committee (FOMC) enacted its third rate cut of the year this week, reducing both the Fed Funds target range and the Interest on Reserve Balances (IORB) by 25 basis points. As we continue to shift into a declining rate environment, credit union decision-makers are understandably focused on portfolio positioning, margin pressure, and reinvestment risk.
We approach this kind of environment a little differently — and there’s an opportunity here for your credit union to do the same.
Don’t Think in Absolute Rates — Think Spread
While most investors look to lock in fixed-rate yields ahead of future rate drops, corporate credit unions like LaCorp are structured to operate on thinner margins and shorter durations. With funding sources that are largely overnight and investments that are short-term by design, our focus is less on absolute yield and more on spread.
In this kind of model, income management becomes a game of inches. Securing a 15-25 basis point spread on idle overnight cash, without taking on additional credit or liquidity risk, can make a meaningful difference in performance.
The Strategy: A Blended Approach to Overnight Liquidity
LaCorp maintains a stable correspondent banking relationship for settlements, just like many of our members. But we also employ a blended overnight strategy to enhance returns.
We do this by allocating a portion of our overnight liquidity, within pre-defined exposure limits, in money market accounts available to corporate credit unions at highly rated, federally insured financial institutions. These accounts can offer superior rates compared to Fed funds or traditional correspondent accounts without sacrificing safety or same-day liquidity. By diversifying across two to three top-tier depositories, we consistently generate incremental yield on about one-third of our overnight funds while maintaining full access to liquidity and security.
Your Credit Union Can Use This Strategy Today
Your credit union can use this same strategy by investing from $5 to $20 million in LaCorp’s overnight money market account:
- No need to move your correspondent relationship! Keep your current setup intact.
- No PCC requirement: the account is open to both full and associate members.
- No notice of withdrawal needed. Access your funds anytime.
- Earn a higher yield — material more than the Fed account rate.
- Diversify. Spread risk while improving return on overnight funds.
This will allow you to achieve a yield materially higher than the Fed account rate on a significant portion of your investment base without hampering duration, liquidity risk or credit risk.
Let’s Maximize What’s Possible — Together
If you already hold a LaCorp Money Market Account, let us help you assess your current allocations and compare available rates. Or, if you prefer a DIY approach, simply transfer from $5 to $20 million to your LaCorp S-005 account from your Fed account or a lower-yielding overnight account. If you don’t yet have a LaCorp S-005 account, we’ll get you set up quickly so you can begin taking advantage of this low-risk, high-efficiency strategy right away.
We’re always here to help you optimize short-term cash — with zero friction, full transparency, and the safety you expect from your corporate.
→ Contact us today to review your investment options and start earning more on your overnight funds.