Bank CD advertisements all over the board

[Drake3287]

I've never understood this and wonder how these supposedly smart banks make wise advertising decisions.

Case in point, while just reading our local Sunday morning paper I've come across 6 different, expensive, quarter page ad's from different banks offering completely different CD rates. Many not even close to each other.

I'm taking 4.25% for 12 months, 4.40% for 11 months, 4.5% for 9 months, 4.00 for 12 months, 3.90% for 9 months, it goes on and on. All while I easily went online yesterday and opened a second 5% CD from Capital One.

Unless you're maybe an elderly customer who doesn't shop around or maybe doesn't want the bother, why would anyone pick any of these obviously low rate CD's? Even my elderly mother use to shop around for the highest rate.

Does anyone actually go into these banks offering such low rates and open accounts when the bank across the street probably has a better rate? It's like none of these banks do any type of comparison at all but still spend thousands on these full color, quarter page ad's.

 

[GenXguy]

I'm taking 4.25% for 12 months, 4.40% for 11 months, 4.5% for 9 months, 4.00 for 12 months, 3.90% for 9 months, it goes on and on. All while I easily went online yesterday and opened a second 5% CD from Capital One.

Some people don't feel comfortable getting CDs online or may not have internet access or know much about it.

 

[mystang52]

It may be to keep one's online life less cluttered. Bulk of our cash is at Ally. I recently opened a 5% CD at Capital One, but generally speaking DW prefers to keep all of our $$ at Ally, for simplicity's sake.

 

[Chuckanut]

IMO, many banks are trying to lock in some lower interest CDs knowing that rates are probably going up in the next month or two. The recent consumer and producer inflation numbers lean towards the Fed hitting us with a few more rate increases, maybe even going back to 0.5% increases. So from a banker's point of view why not lock in as much money as possible in the area of 5%?

Or less than 5% if you can get people to do so.

Here are the rates, as of today, at a big well known credit union in my area. They start at 4.07% for six month CDs and go down to 2.32% for 36-47 month CDs. The six to eleven month CD is the only CD over 4%. Nobody on this site would buy a 3+year CD at 2.32%. Right? But, if they can [-]sucker[/-] convince people into locking in their money at these rates, why not?

The lady pictured at the top of the CD page appears to be a very attractive woman in her 50's or 60's. She has a big smile on her face. Lucky her.

 

[stephenson]

I haven't checked Fidelity, recently - how do their CD rates compare with Capital One or Ally?

 

[copyright1997reloaded]

Here are the rates, as of today, at a big well known credit union in my area. They start at 4.07% for six month CDs and go down to 2.32% for 36-47 month CDs. The six to eleven month CD is the only CD over 4%. Nobody on this site would buy a 3+year CD at 2.32%. Right? But, if they can [-]sucker[/-] convince people into locking in their money at these rates, why not?

Waiting for the "Credit unions are better because they server the members, not the stockholders" folks to chime in.

(Before people jump on me, I am a member of three credit unions based on current and past employers, plus a number of other credit unions via affiliations and locations. What I am stating here is as they grow larger, they lose sight of their original membership purpose and it morphs into an organization there to first provide their upper management with a nice lifestyle.)

My ex-employer credit unions:
1) Pays .25% on their money market account, but only if you have 500k deposited. I can't even find CD's on the site, maybe they are flush with member money too lazy to be moved.
2) Another one (bigger) does have a semi-competitive offer, 4.25% APY on a 24-month CD, and they compare themselves to:
3)My current local CU (associated with state employees), who has a 3.44% APY max rate.

 

[GenXguy]

I haven't checked Fidelity, recently - how do their CD rates compare with Capital One or Ally?

Ally wins at 18 months with 5% APY.
Capital One 11 months 5%.
NFCU 15 months 5%

 

[stephenson]

Ally wins at 18 months with 5% APY.
Capital One 11 months 5%.
NFCU 15 months 5%

Right, but how much less is the Fidelity same maturity? If a tiny bit, the convenience for me, at least, might be meaningful?

 

[Dtail]

Right, but how much less is the Fidelity same maturity? If a tiny bit, the convenience for me, at least, might be meaningful?

The best 18 month CD rate at Fidelity is with Morgan Stanley at 4.90%, so only 10 bp difference.

 

[stephenson]

Dtail,

Thanks - that would be an easy decision for me - just to keep everything in one place, one website.

 

[jazz4cash]

I wouldn’t jump thru a single hoop to get a great rate if it’s only 12 months since I don’t have tens of thousands of $ that I’ll need in 12 months. Easier to lock in 2-5 yr bonds and T-notes In my lumpy ladder.

 

[Aerides]

Case in point, while just reading our local Sunday morning paper <snip>

Unless you're maybe an elderly customer <snip>

Considering these are newspaper ads, they are definitely targeting an older, more offline audience than other campaigns. I would not think there are many under 50 who get a physical paper.

 

[Drake3287]

Some people don't feel comfortable getting CDs online or may not have internet access or know much about it.

In this case, all these advertisements are for brick and mortar banks. Why would someone pick a 4.00% 12 month CD when the bank across the street is offering $4.75%?

 

[frank]

I do not understand the trend of high interest rate short term cd's and then the longer they go out the lower the interest rate. I like to lock in at the highest rate available for 5 years and make sure they have the 180 day ewp. these short term rates don't make a lot of sense to me.

 

[ShokWaveRider]

I do not understand the trend of high interest rate short term cd's and then the longer they go out the lower the interest rate. I like to lock in at the highest rate available for 5 years and make sure they have the 180 day ewp. these short term rates don't make a lot of sense to me.

Especially when MM is 4.5% and up.

 

[Stormy Kromer]

Especially when MM is 4.5% and up.

I haven't even looked at CD's since VG MM is in the 4.5% range for liquid money.

 

[Marc]

I do not understand the trend of high interest rate short term cd's and then the longer they go out the lower the interest rate. I like to lock in at the highest rate available for 5 years and make sure they have the 180 day ewp. these short term rates don't make a lot of sense to me.

The market is betting that there will be a recession and that the Fed will need to lower interest rates at some time in the not too distant future. Can be a dangerous bet. My first mortgage was 15.75% bought down to 11.75%; long term rates can and will rise if short term rates rise and stay high.

One other reason is that Fed is decreasing their balance sheet by letting financial instruments mature and not be replaced; these are more likely to be short term instruments which lowers demand and increases price.

Marc

 

[Car-Guy]

I do not understand the trend of high interest rate short term cd's and then the longer they go out the lower the interest rate. I like to lock in at the highest rate available for 5 years and make sure they have the 180 day ewp. these short term rates don't make a lot of sense to me.

From my POV it's simple. I suspect the banks feel the Fed will be dropping rates in a year or so and they don't want to be stuck paying higher CD rates for an extended period of time when they can get money at lower rates then.

 

[copyright1997reloaded]

I do not understand the trend of high interest rate short term cd's and then the longer they go out the lower the interest rate. I like to lock in at the highest rate available for 5 years and make sure they have the 180 day ewp. these short term rates don't make a lot of sense to me.

There is supply and demand for credit, just like any other good or service. You r statement (bolded) indicates that you have a higher demand for 5 year than shorter denominations. So, if that also is true in the overall market, then the demand for funds (borrowers) will have an advantage over the supplier of those funds (depositors) and thus the price (to the borrower) will be lower (i.e. lower yield on those CD's).

From a demand for credit perspective (e.g. banks) they borrow with the goal of lending at a higher rate, and also with the objective of actually getting the loan repaid (default risk). So if they perceive deteriorating economic conditions, they may react by tightening lending standards or requiring better ROI and NPV calcs from their borrowers, thus reducing their demand for funds of longer duration.

As others have mentioned, this is also an expectations game (like all supply/demand is). If you expect prices to rise in the future, this will shift the demand curve right (i.e. higher demand NOW). If you expect prices to fall in the future, this will shift the demand curve left (i.e. lower demand now). So if the "market" thinks that rates will fall in the future, this lessens demand for those future timeframes NOW. ("Let's wait a while until rates drop to borrow for 10 years"), and might increase demand for shorter maturities now ("In the meantime, we need the money so let's put out a CD for 12 months").