The Rate Cliff Nobody's Talking About
Credit union investment committees got comfortable in 2024 and 2025. Money market funds were paying 4.5%+. Short-term agencies looked fine. Variable rate everything felt like the smart play.
Then the Fed signaled cuts.
Here's the problem: when you're fully variable, you don't get a heads up. Your money market yield drops the week after the Fed meets. Your floating-rate notes reset at the next coupon date. Your next CD renewal comes in 75 bps lower than the last one.
For a credit union budgeting on $2.4 million in annual investment income, a 100 bp decline in yields means $600,000 less than projected. That's real money — the kind that shows up in board reports and member service discussions.
The Historical Pattern
This has happened before, and it follows a predictable script:
2019–2020: The Fed cut rates three times in 2019, then slashed to near-zero in March 2020. Credit unions that had locked in 3%+ fixed rates in 2018 continued earning those rates through 2021. Those that stayed variable saw investment income drop 60–70%.
2007–2008: Similar pattern. Rates went from 5.25% to effectively zero in 18 months. Fixed-rate positions funded in 2006–2007 were the best-performing assets on every credit union balance sheet for the next five years.
The Math Right Now
Let's say your credit union has $60 million in investments:
Scenario A — Fully Variable (illustrative):
- Current yield: $60M × 4.5% = $2.7M annually
- If rates decline 150 bps: $60M × 3.0% = $1.8M annually
- Potential lost income: $900,000/year
Scenario B — 30% in Guaranteed-Rate Products:
- $18M locked at a guaranteed rate above current levels
- $42M variable, subject to rate changes
- Result: significantly more stable income floor regardless of Fed action
These are simplified illustrations. Actual results depend on specific product terms, timing, and rate movements.
That's the difference between a budget adjustment and a budget crisis.
What "Locking In" Actually Looks Like
This doesn't mean putting all your reserves in a 7-year product. A sensible approach:
- Determine your operating liquidity needs (typically 60–70% of reserves)
- Identify truly excess funds (the portion you won't touch for 2–5 years)
- Lock a portion in guaranteed-rate products at current elevated rates
- Keep the rest flexible for operational needs and future opportunities
The goal isn't to eliminate variable exposure — it's to create an income floor that protects your budget regardless of where rates go.
The Window Is Closing
MYGA rates follow the broader rate environment, but with a lag. When the Fed adjusts rates, it takes time for carrier portfolio yields to shift. That lag can create windows of opportunity — or windows that close.
The institutions that fare best are those that maintain a disciplined approach to locking in guaranteed rates as part of their overall strategy, rather than trying to time the market perfectly.
Model the impact on your specific portfolio. Schedule a briefing and we'll build a rate sensitivity analysis for your institution.