Deposit Accounts

Credit unions generally deposit funds in an account at a bank, credit union, or corporate credit union to use for non-cash member transactions, such as member share withdrawals by check or share draft, loan originations, purchases of other assets, and payments of liabilities and expenses. A credit union may have several different deposit accounts. Deposit account types include:

Drafts/Checks

Drafts, also referred to as checks, are a form of written commitment to pay upon receipt from the funds on deposit. Credit union drafts include cashier’s checks.

Cashier’s Checks

Credit unions issue cashier’s checks for payments, similar to writing checks from a checking account. Cashier’s checks can be issued for loan disbursements, share withdrawals, and expense disbursements.

On-Us Accounts

Credit unions may use in-house, or on-us, accounts to process credit union-issued transactions such as loan disbursements, share withdrawals, expense disbursements, and payroll. In an on-us account, the transactions clear through an account at the credit union. The on-us account serves as an alternative to a deposit account at another institution and is a liability of the credit union.

Examiners can identify on-us share draft accounts by:

  • Asking management

  • Reviewing canceled and outstanding drafts

  • Reviewing zero balance or overdrawn share draft reports

On-us share draft accounts are liabilities, not share accounts. If a credit union uses an on-us share draft account, it can inflate or deflate actual total share account amounts. This, in turn, could affect the institution’s capitalization deposit and the operating fee a FCU pays the NCUA.

At any given month-end, the balance remaining in these share draft accounts represents the amount of drafts outstanding.

Credit (Negative) Deposit Account Balance

A credit (or negative) deposit account balance is an overdrawn position on a credit union’s deposit account. Frequent overdraws could indicate elevated liquidity risk, transaction risk, and reputation risk.

Sweep Accounts

Some financial institutions offer a sweep account feature, which allows the institution to move some or all of the balance of a credit union’s deposit account into some form of overnight marketable securities.

Using a sweep feature, a credit union can often improve earnings on its deposit account because marketable securities have the potential for higher yields than a regular deposit account. However, a credit union generally bears all of the market risk inherent in a sweep transaction. Market risk relates to the gain or loss associated with changes to interest rate on overnight deposits.

Last updated on December 18, 2020