Why are mega Banks not offering higher CD rates?

[Drake3287]

Anyone care to explain this to me? Like many, I have a handful of CD's paying around 3% now and none of them are with larger banks such as BofA or Wells Fargo. Most are online banks.

I'm also the unfortunate Trustee to a "special needs trust" account for someone and I need to move a larger amount of money into one of these higher paying CD's. I'd love to keep it at BofA for simplicity and ease of transferring because I already use BofA as my everyday bank, but when checking their CD rates, we're talking something like 0.05% or so. Literally still almost nothing compared to all the others that I have my money in.

In checking Wells Fargo, they're also in the same league of extremely low rates. Why is it these large banks refuse to pay any real interest on larger accounts such as CD's? Have they basically given up in offering these accounts now?

 

[skyking1]

I don't know. I had a CD auto renew at BECU at 1.1%.
I shut that down and moved the funds to an online savings account with 1.9%
I need to keep it liquid for the home build.
If that was not the case I can get 3% at Sound Community Bank, our probable new brick and mortar at the new place.
https://www.soundcb.com/_/kcms-doc/613/29225/Deposit-Rates-for-Web.pdf

 

[Chuckanut]

They don't offer higher rates to common folk like us because they have other sources of money. Many ordinary people are either ignorant or lazy or busy and don't bother to switch to higher paying banks. The Mega Banks know this and take advantage of these customers to pad their profits. They don't care to offer higher interest because they don't have to do so.

My solution is simple. They can keep their 'high' interest 0.5% accounts and I will keep my money someplace else. Win/Win or No Deal. I choose No Deal when it comes to the Mega Banks.

 

[teej1985]

They don't need to. They have enough deposits.

 

[gauss]

I agree. My understanding is that they have enough funds available to cover the loans that they wish to make as well as their "reserve" requirements.

They will raise rates when/if they need to.

-gauss

 

[target2019]

The approach for modern investors is to use true hi-yield online solutions and banks for longer cash. For bill-paying and shorter needs the local or online investing bank works.

We closed a local bank checking account, and went in to the branch to take care of this. When the rep saw our other checking account balance, he wanted us to set up a free consultation with one of their advisors. I politely declined and explained that we had short-term needs comin up, and do withdraw excess cash and get x percent for it rather than almost zero. He did not take my bait and said we should talk to them as it is free, and there is no commitment.

There are people who invest in those low bank rates for duration. I havent done that since the 70's.

 

[Dtail]

Love my BOA bank, but would never use them for CD type investments.

 

[jollystomper]

Agree with the others. The reason to offer great CD rates is to attract more money from particular classes of investors (based on the minimum CD requirement). The big banks do not see the everyday consumer as their main clients from a savings perspective, so no need to fervently chase after that market for savings, the relative profit is not that much.

Interesting, however, that it is different when it comes to credit cards. Huge consumer profits on those, and that is one of the consumer markets they go after.

 

[jebmke]

They don't need to. They have enough deposits.

right; or they can borrow more cheaply from each other or the FED.

 

[Car-Guy]

Lot's of brokered CD's through Schwab are now paying 4% or more... I saw 4.2% a few days ago but those are sold out now. Still, there are plenty of 4 and 4.1% CD's at any maturity of 1 to 5 years. I expect them to be 4.5 to 5% by the end of the year, particularly after Powell and friends raised the federal funds rates again yesterday and will probably do so again before year end.. It just takes a little time to work it's way to CD rate increases. CD's are the bottom of the food chain from my POV. YMMV.

No, it's doesn't keep you up with inflation but it's slows the bleeding.

Funny thing is (compared to ~10 years ago) it seems I can now get better rates going through a broker like Schwab... ~10 years ago, I could get the best rates going directly to the banks. Something has changed.

 

[workmyfingerstothebone]

I'm seeing some Morgan Stanley CD's, 1yr being offered at 4%.




But why buy these when the 1yr Tbill is 4% and no state or local taxes.


I'll stick to the Tbill till things change.

 

[GalaxyBoy]

The Marketplace podcast had a segment related to this recently.

https://www.marketplace.org/2022/09/16/why-savings-account-interest-rates-are-rising-slowly/

Two takeaways were that bank interest is generally still very low due to supply and demand (they have all the money they need for making loans) and online banks pay more due to lack of overhead like brick and mortar locations. I’m not sure that second point fully explains the difference, though.

 

[JoeWras]

They don't care. They don't need your money as long as they are within regulations. They make money off loans and commercial activity, not deposits.

I posted this earlier on another thread, so since people are referencing articles, here's one. Probably paywalled.

---

Basically, the topic can be summarized as thus: banks are seeing savings outflows, and they really don't care. They'll keep their savings rate at 0.10%, and they don't care.

The money is in lending, and they are making the money. They have plenty of deposits to satisfy the regulators, due to all the money that has floated around. So, if they can get away with it, they'll keep rates low and celebrate you taking money out to buy that Treasury.

U.S. Banks Lost a Record $370 Billion in Deposits Last Quarter

Deposits at U.S. banks fell by a record $370 billion in the second quarter, the first decline since 2018.

The outflow in the quarter isn’t a problem for banks, which are sitting on more deposits than they want.
...
When the Fed started increasing its benchmark rate this year, banks expected—and wanted—some customers to move their money to places offering higher interest payments, such as government bonds.
...
The deposit outflows will fuel a debate about how the Fed’s moves to tighten monetary supply and slow the pace of inflation are going to play out in a banking system flooded with liquidity.

 

[Dtail]

Lot's of brokered CD's through Schwab are now paying 4% or more... I saw 4.2% a few days ago but those are sold out now. Still, there are plenty of 4 and 4.1% CD's at any maturity of 1 to 5 years. I expect them to be 4.5 to 5% by the end of the year, particularly after Powell and friends raised the federal funds rates again yesterday and will probably do so again before year end.. It just takes a little time to work it's way to CD rate increases. CD's are the bottom of the food chain from my POV. YMMV.

No, it's doesn't keep you up with inflation but it's slows the bleeding.

Funny thing is (compared to ~10 years ago) it seems I can now get better rates going through a broker like Schwab... ~10 years ago, I could get the best rates going directly to the banks. Something has changed.

Noticed that too. At one point, Fidelity was offering Ally Bank CD's for higher yields than the same CD at Ally Bank itself.

 

[audreyh1]

Anyone care to explain this to me? Like many, I have a handful of CD's paying around 3% now and none of them are with larger banks such as BofA or Wells Fargo. Most are online banks.

I'm also the unfortunate Trustee to a "special needs trust" account for someone and I need to move a larger amount of money into one of these higher paying CD's. I'd love to keep it at BofA for simplicity and ease of transferring because I already use BofA as my everyday bank, but when checking their CD rates, we're talking something like 0.05% or so. Literally still almost nothing compared to all the others that I have my money in.

In checking Wells Fargo, they're also in the same league of extremely low rates. Why is it these large banks refuse to pay any real interest on larger accounts such as CD's? Have they basically given up in offering these accounts now?

Because they don’t have to. They are awash with deposits and don’t need or want anymore.

 

[ShokWaveRider]

As mentioned, before they have a LOT of cheap money on the books from QE that they want to make a killing on.

 

[jebmke]

I'm seeing some Morgan Stanley CD's, 1yr being offered at 4%.




But why buy these when the 1yr Tbill is 4% and no state or local taxes.


I'll stick to the Tbill till things change.

Treasuries also more liquid.

 

[brucethebroker]

Anyone care to explain this to me? Like many, I have a handful of CD's paying around 3% now and none of them are with larger banks such as BofA or Wells Fargo. Most are online banks.

I'm also the unfortunate Trustee to a "special needs trust" account for someone and I need to move a larger amount of money into one of these higher paying CD's. I'd love to keep it at BofA for simplicity and ease of transferring because I already use BofA as my everyday bank, but when checking their CD rates, we're talking something like 0.05% or so. Literally still almost nothing compared to all the others that I have my money in.
In checking Wells Fargo, they're also in the same league of extremely low rates. Why is it these large banks refuse to pay any real interest on larger accounts such as CD's? Have they basically given up in offering these accounts now?

Because they know they don't have to. They have lots of customers who are too busy to pay attention. No incentive to be competitive with existing customers. I have seen numerous competitive CD's by Wells Fargo being brokered online. That should tell us something-they don't want their "good" customers to know, I guess.

 

[brucethebroker]

The approach for modern investors is to use true hi-yield online solutions and banks for longer cash. For bill-paying and shorter needs the local or online investing bank works.

We closed a local bank checking account, and went in to the branch to take care of this. When the rep saw our other checking account balance, he wanted us to set up a free consultation with one of their advisors. I politely declined and explained that we had short-term needs comin up, and do withdraw excess cash and get x percent for it rather than almost zero. He did not take my bait and said we should talk to them as it is free, and there is no commitment.

There are people who invest in those low bank rates for duration. I havent done that since the 70's.

Had a 70 year old friend (similar situation as above) who was referred to a youngster "advisor" at the bank in the spring. Friend was told about "safe" income fund with a 5-10 year history of paying 8%. He has quite a (paper) loss and is furious. Very poor advice to give a retiree.

 

[JoeWras]

The sad thing about this is that most of the population is unaware of the online banks, or afraid to use them, or unable to use them.

Treasuries? That's rarefied air for the majority of the population.

 

[Drake3287]

Thanks for the comments, unfortunately I tend to agree with most of you regarding why BofA isn't paying any real interest. For me, it's just for the ease of keeping funds in this "Special Needs Trust" in one place. Unfortunately I may have to go the Ally route for a higher return once this latest rate increase takes affect.