When you compare CD rates, bigger doesn't always mean bigger. Some of the largest banks in the US offer fairly low CD rates. Shouldn't they be able to afford to pay the higher CD rates? Probably, but why don't they. Simply, they don't need to.
Banks are in business to make money. They want to return as large as a profit as they can to their stockholders. You may actually be better off buying their stock then putting your hard-earned savings with them. But, I digress. The CD rates for large banks such as World Savings, Bank of America, Citibank, etc. are low because they have such a large base of low interest deposits such as savings accounts and checking accounts.
Banks' profits are derived primarily from two sources. First, is fee income (checking account, ATM, call center fees, etc.). The second source is the spread they make on the difference between the savings and CD rates they pay on deposits and the rates you pay for your loans through them. This isn't a perfect example, but if the average rate they pay for their combined deposits is 3.0% and the average loan rate is 6.0%, they are making a 300 Basis Point spread. On hundreds of millions in loans, that is a lot of clams.
If you compare CD rates across the country, the best rates are around 5.40% for 1Y. If the big banks had to pay that for all of their deposits, they would only be making 60 Basis Points. They just can't survive on that kind of a rate margin (or so they tell us).
So compare the CD rates that World Savings, Bank of America, and Citibank are offering with other banks across the country. Our site makes this easy. Please visit our
Compare CD Rates page.
Also, don't forget to compare credit union CD rates. They often have higher CD rates then banks. The reasons though for that will be in a forth-coming article. Please view our
Certificate of Deposit rates Page.
Chris Duncan is a NASD Registered Representative. He specializes in helping clients find the best and highest CD rates nationwide. His clients include individuals, financial institutions, corporations, and public agencies. Visit us at
www.jumbocdinvestments.com
