1. What Is Cost Of Funds (COF)?

Cost Of Funds (COF) is a financial metric used by credit unions to measure the interest expense incurred relative to the average shares held. It represents the percentage cost of maintaining deposit accounts and other funding sources.

2. How Does The Calculator Work?

The calculator uses the COF formula:

Where:

• \( \text{Interest Expense} \) — Total interest paid on deposits and borrowings (USD)
• \( \text{Average Shares} \) — Average balance of shares and deposits (USD)

Explanation: This calculation helps credit unions understand the cost efficiency of their funding sources and make informed decisions about pricing and profitability.

3. Importance Of COF Calculation

Details: Monitoring COF is crucial for credit unions to maintain competitive pricing, manage interest rate risk, and ensure sustainable profitability while serving member needs.

4. Using The Calculator

Tips: Enter interest expense and average shares in USD. Both values must be positive numbers. The result shows the cost of funds as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What Is A Good COF For Credit Unions?
A: A lower COF indicates more efficient funding. Industry averages vary, but typically range between 1-3% depending on market conditions and credit union size.

Q2: How Often Should COF Be Calculated?
A: Most credit unions calculate COF monthly or quarterly to monitor funding costs and adjust strategies accordingly.

Q3: What Factors Affect COF?
A: Market interest rates, deposit mix, member behavior, and competitive pressures all influence a credit union's cost of funds.

Q4: How Can Credit Unions Reduce COF?
A: Strategies include optimizing deposit pricing, increasing non-interest bearing accounts, and improving member retention to stabilize funding costs.

Q5: Is COF The Same As Net Interest Margin?
A: No, COF measures funding costs while net interest margin represents the difference between interest earned and interest paid as a percentage of assets.