why do banks bother offering lousy CD rates?

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anoop
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why do banks bother offering lousy CD rates?

Post by anoop » Thu Jan 11, 2018 7:04 pm

I am still seeing big banks offering 5 year CDs at < 1% and 1 year CDs at < 0.1%! The rate on a savings account is typically < 0.1%.

Why do they even bother offering such products and who is buying them?

You can now get 10x that return on treasuries and those are free of state tax to boot.

Some banks that provide high-interest savings are also offering lousy rates on CDs.

livesoft
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Re: why do banks bother offering lousy CD rates?

Post by livesoft » Thu Jan 11, 2018 7:11 pm

I know people who do not know that there are online places to invest. Or they are afraid of sending money to a place that they cannot walk into within 5 miles of their home. You have to admit that we see some of that behavior at bogleheads.org especially when it comes to emergency funds.

So if a bank has a captive audience, why would the bank want to pay market rate interest for CDs. All that would do is cost them free money.
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Katietsu
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Re: why do banks bother offering lousy CD rates?

Post by Katietsu » Thu Jan 11, 2018 7:11 pm

Inertia. That is why special rate CD’s are oddball lengths of time like 15 months. That way the person who put $20,000 in a 1 year CD 15 years ago never gets the special rate.

How many people do you think even know what a Treasury is?

I do have money at .15% in my local bank. It gets me the fee waivers and yes, I, feel emergency funds should be local...Just heard the same recommendation from Jean Chatzky.

Agggm
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Re: why do banks bother offering lousy CD rates?

Post by Agggm » Thu Jan 11, 2018 7:19 pm

anoop wrote:
Thu Jan 11, 2018 7:04 pm
I am still seeing big banks offering 5 year CDs at < 1% and 1 year CDs at < 0.1%! The rate on a savings account is typically < 0.1%.

Why do they even bother offering such products and who is buying them?

You can now get 10x that return on treasuries and those are free of state tax to boot.

Some banks that provide high-interest savings are also offering lousy rates on CDs.
Because most people/money don't know there are better options.

PugetSoundguy
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Re: why do banks bother offering lousy CD rates?

Post by PugetSoundguy » Thu Jan 11, 2018 7:19 pm

Our small neighborhood commercial strip is challenging for most small merchants but there are seven (!) brick and mortar banks within four blocks, all offering lousy CD rates. There are also two Edward Jones offices in the same few blocks, with a third office on the other side of the neighborhood where the fishing boats berth. I think a fair number of people like to conduct financial dealings face-to-face, however much it may cost them. If they even know how much it costs them.

srt7
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Re: why do banks bother offering lousy CD rates?

Post by srt7 » Thu Jan 11, 2018 7:24 pm

Good question. Perhaps because the pipeline for such products is already set and (like others posters have mentioned) there are long-term customers who diligently use them. So why would banks bother changing or getting rid of such products. I am sure the laddering concept was just banks being creative so their customers feel fancy. Some banks even sweeten the deal by including CD money in their requirements to waive fees or make you eligible for their more "premium" products.

anoop
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Re: why do banks bother offering lousy CD rates?

Post by anoop » Thu Jan 11, 2018 7:38 pm

In the absence of the Internet and being able to shop for the best rates, we wouldn't even know we were being taken for a ride by the bank.

It's almost like you have to be on top of things all the time checking rates.

I am trying to simplify my accounts -- I currently bank with 5 financial institutions.
- 1 regular bank for easy ATMs
- 1 credit union for decent rates on CDs
- 2 online banks for savings rates (for some reason both offer lousy CD rates, I have two so I can move money to the higher rate one since they sometimes will lower their rates)
- 1 brokerage

I can't figure out a way to consolidate these without taking a hit of some sort. Maybe I could try using brokered CDs and get rid of the credit union account.

I'm a fixed income type person and don't invest in stocks.

jalbert
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Re: why do banks bother offering lousy CD rates?

Post by jalbert » Thu Jan 11, 2018 7:47 pm

They would only offer 1% on a 5-year if they were not strongly interested in the business. The FDIC-mandated business plan required for FDIC insurance normally requires offering depository and credit services, but a bank may favor participating in some activities over others and set rates accordingly.
Risk is not a guarantor of return.

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BogleMelon
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Re: why do banks bother offering lousy CD rates?

Post by BogleMelon » Thu Jan 11, 2018 7:52 pm

livesoft wrote:
Thu Jan 11, 2018 7:11 pm
I know people who do not know that there are online places to invest. Or they are afraid of sending money to a place that they cannot walk into within 5 miles of their home. You have to admit that we see some of that behavior at bogleheads.org especially when it comes to emergency funds.

So if a bank has a captive audience, why would the bank want to pay market rate interest for CDs. All that would do is cost them free money.
I know someone who is like that. He actually got charged monthly from his saving account if not certain criteria were met :oops:
Another coworker too is running to the bank every other Friday (when we get paid). Seems he doesn't believe in banks at all and keep everything in cash :D
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

matt fe2o3
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Re: why do banks bother offering lousy CD rates?

Post by matt fe2o3 » Thu Jan 11, 2018 7:58 pm

New issues for non-callable at 2.668 / 2.682......



2.650
01-18-2023 N/A DISCOVER BANK (DE)
5 year, Non Callable
CUSIP: 254673LE4
100.000 2.668 2.668 901/1 Buy Primary
01/17/2018
01/18/2018

2.650
01-19-2023 N/A WELLS FARGO BANK NA (SD)
5 year, Non Callable
CUSIP: 949763MT0
100.000 2.682 2.682 1,535/1 Buy Primary
01/18/2018
01/19/2018

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Pajamas
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Re: why do banks bother offering lousy CD rates?

Post by Pajamas » Thu Jan 11, 2018 7:59 pm

I knew someone who had almost $2 million in a non-interest bearing checking account when she died. That money had been deposited over a thirty year period. Even a lousy CD rate would have made a huge difference in the total amount. I would have thought that someone would have offered to at least help her open a money market account. She made regular visits to the bank and was friendly with the tellers. Maybe they did offer and she declined.

Her heir left it there out of respect for her mother because that's where she put it. It will probably still be there when she dies, too.

anoop
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Re: why do banks bother offering lousy CD rates?

Post by anoop » Thu Jan 11, 2018 8:04 pm

matt fe2o3 wrote:
Thu Jan 11, 2018 7:58 pm
New issues for non-callable at 2.668 / 2.682......



2.650
01-18-2023 N/A DISCOVER BANK (DE)
5 year, Non Callable
CUSIP: 254673LE4
100.000 2.668 2.668 901/1 Buy Primary
01/17/2018
01/18/2018

2.650
01-19-2023 N/A WELLS FARGO BANK NA (SD)
5 year, Non Callable
CUSIP: 949763MT0
100.000 2.682 2.682 1,535/1 Buy Primary
01/18/2018
01/19/2018
I'm going to wait at least until the end of the year before I get anything > 2 years. I'm already in a few < 2% 5 year CDs, and < 2% 5/7 year treasuries.

DonDraper
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Re: why do banks bother offering lousy CD rates?

Post by DonDraper » Thu Jan 11, 2018 10:03 pm

My 78 year old Mother has over $100k in one of these lousy savings accounts. I can’t convince her to use an online bank. She doesn’t even use the internet. She doesn’t have a smart phone.

tbradnc
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Re: why do banks bother offering lousy CD rates?

Post by tbradnc » Thu Jan 11, 2018 10:16 pm

My understanding is that banks who offer lower rates on CDs simply don't need the money - they have plenty of cash/liquidity.

These banks have smart people who know how to use the internet - they've heard of depositaccounts.com, bankrate.com, etc. etc.

J295
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Re: why do banks bother offering lousy CD rates?

Post by J295 » Thu Jan 11, 2018 10:18 pm

At various times banks don’t want additional deposits

anoop
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Re: why do banks bother offering lousy CD rates?

Post by anoop » Thu Jan 11, 2018 10:24 pm

A thought just occurred to me -- some banks want to steer people to their wealth management arms by offering lousy CD rates. They are OK with losing some business to online banks. And if an occasional sucker falls for it, then it's free money for them.

I started this thread because I felt it's almost like cheating their customers. And then they talk about how trustworthy they are!

MikeG62
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Re: why do banks bother offering lousy CD rates?

Post by MikeG62 » Fri Jan 12, 2018 7:11 am

livesoft wrote:
Thu Jan 11, 2018 7:11 pm
I know people who...are afraid of sending money to a place that they cannot walk into within 5 miles of their home.
This is applies to both my parents and my in-laws.

I've been trying to educate them on internet bank for years - they'll have none of it (for the reason livesoft mentioned). At least they both use a credit union to invest their excess cash which offers far better rates than brick and mortar banks.

Sometimes you can lead a horse to water, but...

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Re: why do banks bother offering lousy CD rates?

Post by Grt2bOutdoors » Fri Jan 12, 2018 7:23 am

MikeG62 wrote:
Fri Jan 12, 2018 7:11 am
livesoft wrote:
Thu Jan 11, 2018 7:11 pm
I know people who...are afraid of sending money to a place that they cannot walk into within 5 miles of their home.
This is applies to both my parents and my in-laws.

I've been trying to educate them on internet bank for years - they'll have none of it (for the reason livesoft mentioned). At least they both use a credit union to invest their excess cash which offers far better rates than brick and mortar banks.

Sometimes you can lead a horse to water, but...
Keep trying, tell them it’s FDIC insured, tell them that is where you keep your money! It worked for my folks, it can work for yours.
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Re: why do banks bother offering lousy CD rates?

Post by Call_Me_Op » Fri Jan 12, 2018 7:29 am

Many senior citizens will only deal with banks. (My parents are good examples.) It doesn't matter if 1 year treasuries are offering higher yields than 5 year bank CD's. They will not open a brokerage account or sign-up for Treasury Direct to have access to the treasuries.
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HueyLD
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Re: why do banks bother offering lousy CD rates?

Post by HueyLD » Fri Jan 12, 2018 7:36 am

Some banks also have secret rates that are only available to their “preferred” customers.

I think those banks use such a strategy to make their preferred customers feel special and loyal.

Of course banks can always raise money as needed by offering higher rates on targeted products to the public.

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Re: why do banks bother offering lousy CD rates?

Post by MikeG62 » Fri Jan 12, 2018 7:38 am

Grt2bOutdoors wrote:
Fri Jan 12, 2018 7:23 am
MikeG62 wrote:
Fri Jan 12, 2018 7:11 am
livesoft wrote:
Thu Jan 11, 2018 7:11 pm
I know people who...are afraid of sending money to a place that they cannot walk into within 5 miles of their home.
This is applies to both my parents and my in-laws.

I've been trying to educate them on internet bank for years - they'll have none of it (for the reason livesoft mentioned). At least they both use a credit union to invest their excess cash which offers far better rates than brick and mortar banks.

Sometimes you can lead a horse to water, but...
Keep trying, tell them it’s FDIC insured, tell them that is where you keep your money! It worked for my folks, it can work for yours.
Ha, easier said than done. I have/manage multiple times the amount of money both sets of parents do combined (and they both know this), yet they still think internet banks are more risky that B&M banks (this despite my best efforts to educate them otherwise). They know I've been using internet banks for well over a decade too. Still no progress on getting them to see the light. Your parents far more reasonable (open to ideas other than their own) than mine (or my in-laws). Sometimes one just has to throw in the towel.

Mike Scott
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Re: why do banks bother offering lousy CD rates?

Post by Mike Scott » Fri Jan 12, 2018 8:06 am

Because they can.

Our family had some trouble getting my dad to even open a local bank checking account and then he agreed to actually put some of his savings into a CD there as well. He had a stash of cash in a box at home before that. I don't think anyone has even mentioned online banking to him. It's his money and he is capable of making his own decisions even if they are less than optimal. His SS and VA pension income combined are about 5X his monthly expenses so it does not really matter much either. He has nothing that most people would call "investments".

I use a local bank extensively for holding short term "cash" as well as their fantastic and free customer service. It helps that I already drive by it a couple of times a week during business hours so stopping is convenient if needed. However, anything more than $100 or so or any $ held for more than 30 days gets transferred out to other accounts. This same bank often has the lowest mortgage rates that I have ever seen so they have that as well.

Katietsu
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Re: why do banks bother offering lousy CD rates?

Post by Katietsu » Fri Jan 12, 2018 1:25 pm

MikeG62 wrote:
Fri Jan 12, 2018 7:38 am
Grt2bOutdoors wrote:
Fri Jan 12, 2018 7:23 am
MikeG62 wrote:
Fri Jan 12, 2018 7:11 am
livesoft wrote:
Thu Jan 11, 2018 7:11 pm
I know people who...are afraid of sending money to a place that they cannot walk into within 5 miles of their home.
This is applies to both my parents and my in-laws.

I've been trying to educate them on internet bank for years - they'll have none of it (for the reason livesoft mentioned). At least they both use a credit union to invest their excess cash which offers far better rates than brick and mortar banks.

Sometimes you can lead a horse to water, but...
Keep trying, tell them it’s FDIC insured, tell them that is where you keep your money! It worked for my folks, it can work for yours.
Ha, easier said than done. I have/manage multiple times the amount of money both sets of parents do combined (and they both know this), yet they still think internet banks are more risky that B&M banks (this despite my best efforts to educate them otherwise). They know I've been using internet banks for well over a decade too. Still no progress on getting them to see the light. Your parents far more reasonable (open to ideas other than their own) than mine (or my in-laws). Sometimes one just has to throw in the towel.
I used to feel this way but have had a course correction. For a not so insignificant segment of people, especially those of a certain age, using a local bank, not using online banking, allows them to function independently and with a much lower risk of falling prey to fraud or scam. An extra % of interest is a small price to pay. In return, the person can continue to be in charge of their own finances. The person has a much lower risk of making a mistake and sending money to the wrong place with an errant mouse click. They are much less likely to be scammed by a phone call because they know that they can go to the bank in person to straighten any problems out. It doesn’t matter that their lack of computer “alertness” leads to malware on the computer or other dangerous security issues. And on and on. For anyone on this forum, it may be hard to relate. But if you have someone who finds it challenging to learn to use a Roku, doesn’t it make sense that they are more comfortable with a local bank?

hudson
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Re: why do banks bother offering lousy CD rates?

Post by hudson » Sat Jan 13, 2018 12:02 am

anoop wrote:
Thu Jan 11, 2018 7:38 pm
In the absence of the Internet and being able to shop for the best rates, we wouldn't even know we were being taken for a ride by the bank.

It's almost like you have to be on top of things all the time checking rates.

I am trying to simplify my accounts -- I currently bank with 5 financial institutions.
- 1 regular bank for easy ATMs
- 1 credit union for decent rates on CDs
- 2 online banks for savings rates (for some reason both offer lousy CD rates, I have two so I can move money to the higher rate one since they sometimes will lower their rates)
- 1 brokerage

I can't figure out a way to consolidate these without taking a hit of some sort. Maybe I could try using brokered CDs and get rid of the credit union account.

I'm a fixed income type person and don't invest in stocks.
I also don't do stocks.
A few months before I need to get a new CD, I start watching Kevin M's contributions....but you probably already know about his contributions.
search.php?author_id=14152&sr=posts

I also keep an eye on high quality intermediate muni funds like VWIUX and BMBIX. If you go there, maybe also read up on tax loss harvesting. There's a Boglehead who's name escapes me who quit doing CDs and uses only munis because he says the gain is about the same and it's low maintenance. I'll try to find his contribution.

Update...It was Dratkinson in this contribution: viewtopic.php?p=3286357#p3286357
Last edited by hudson on Sat Jan 13, 2018 9:51 am, edited 2 times in total.

anoop
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Re: why do banks bother offering lousy CD rates?

Post by anoop » Sat Jan 13, 2018 1:36 am

hudson wrote:
Sat Jan 13, 2018 12:02 am
anoop wrote:
Thu Jan 11, 2018 7:38 pm
In the absence of the Internet and being able to shop for the best rates, we wouldn't even know we were being taken for a ride by the bank.

It's almost like you have to be on top of things all the time checking rates.

I am trying to simplify my accounts -- I currently bank with 5 financial institutions.
- 1 regular bank for easy ATMs
- 1 credit union for decent rates on CDs
- 2 online banks for savings rates (for some reason both offer lousy CD rates, I have two so I can move money to the higher rate one since they sometimes will lower their rates)
- 1 brokerage

I can't figure out a way to consolidate these without taking a hit of some sort. Maybe I could try using brokered CDs and get rid of the credit union account.

I'm a fixed income type person and don't invest in stocks.
I also don't do stocks.
A few months before I need to get a new CD, I start watching Kevin M's contributions....but you probably already know about his contributions.
search.php?author_id=14152&sr=posts

I also keep an eye on high quality intermediate muni funds like VWIUX and BMBIX. If you go there, maybe also read up on tax loss harvesting. There's a Boglehead who's name escapes me that quit doing CDs and uses only VWIUX because he says the gain is about the same and it's low maintenance. I'll try to find his contribution.

Update...It was Dratkinson in this contribution: viewtopic.php?p=3286357#p3286357
Wow. Didn’t know there were other people that stayed away from stocks. I’ve actually tried to do polls in non financial forums that I frequent and never came across even one person that wasn’t in stocks.

Thanks for the pointers. It looks like Vanguard has better fixed income funds than Fidelity.

Dead Man Walking
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Re: why do banks bother offering lousy CD rates?

Post by Dead Man Walking » Sat Jan 13, 2018 3:33 am

We bank at Chase. My wife doesn't do internet banking; consequently, we don't have internet banking accounts. However, we have accounts with local b & m banks that offer rates slightly lower than internet banks. When I write checks for deposits in these banks that are $10,000 or over, we receive a call from our "personal" banker offering investment alternatives that would provide higher return. When I ask for investments that would provide returns higher than our Vanguard funds or rates higher than the bank across the street, the conversation ends. Apparently Chase has no need for more capital. We maintain a balance over $15,000 at Chase so that we receive a discount on our safe deposit box and no fee services. Besides, my wife has a friendly relationship with the tellers at Chase. I rarely go to the bank unless I need to use the safe deposit box.

DMW

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Re: why do banks bother offering lousy CD rates?

Post by sport » Sat Jan 13, 2018 3:41 am

Katietsu wrote:
Thu Jan 11, 2018 7:11 pm
Inertia. That is why special rate CD’s are oddball lengths of time like 15 months. That way the person who put $20,000 in a 1 year CD 15 years ago never gets the special rate.
There is a bank in my area that offers these special rate CDs at oddball maturities. Their CDs also renew for the same term automatically. There is only a 7-day grace period where you can get your money out without penalty or roll over to a different maturity. They will not offer one that does not renew itself. Of course, when renewal time arrives, the specials are for different terms. So, the renewal CD will be a very low interest rate. I am in the process of moving my CDs to broker CDs. The rates are better and they do not automatically renew if I am not paying attention.

TwstdSista
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Re: why do banks bother offering lousy CD rates?

Post by TwstdSista » Sat Jan 13, 2018 5:31 am

My credit union is not super competitive with savings and CD rates, but multiple accounts and multiple financial institutions drive me (and the husband) up a wall. So we keep it simple -- one CU and one brokerage.

I'll just take my 1% interest and meander on my way....

hudson
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Re: why do banks bother offering lousy CD rates?

Post by hudson » Sat Jan 13, 2018 9:57 am

anoop wrote:
Sat Jan 13, 2018 1:36 am
Thanks for the pointers. It looks like Vanguard has better fixed income funds than Fidelity.
I haven't compared Vanguard to Fidelity on fixed income or anything....not sure.

Why do banks bother? The question that I ask is where can I get the best rates...after taxes.

You probably saw this discussion on Brokered CDs; I've never bought one because I found better deals at credit unions.

viewtopic.php?p=3618893#p3618893

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sunny_socal
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Re: why do banks bother offering lousy CD rates?

Post by sunny_socal » Sat Jan 13, 2018 10:17 am

B&M banks offer bad rates on everything:
- Savings
- HELOC
- Mortgage, refi

But they offer something you can't get online: someone to complain to! :wink:

I use a bank only as a bill pay conduit and for a safe deposit box. I maintain a $300 balance in the savings account to avoid fees.

CppCoder
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Re: why do banks bother offering lousy CD rates?

Post by CppCoder » Sat Jan 13, 2018 10:26 am

I see a lot of responses along the lines of "because they can." I don't think that's correct (but really don't know any better than others). I think it's more akin to why a financially secure person might choose not to have a mortgage even though they could. If you have enough money, why would you borrow some from others?

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Re: why do banks bother offering lousy CD rates?

Post by rec7 » Sat Jan 13, 2018 11:21 am

I think some people do not want to bother with moving. The fact that the bank is big and close to home feels safe.
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Lynette
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Re: why do banks bother offering lousy CD rates?

Post by Lynette » Sat Jan 13, 2018 11:53 am

It depends on the amount and interest rate. I have $15K in a savings about at Ally. This past year the interest rate was 1%. I pay tax on the interest at 28% marginal (old rates). Then I have the hassle of dealing with the paperwork and have to pay my accountant to do this. It also counts towards my MAGI for Medicare IRMAA. It is hardly worth it for $15K. I have about $25K in a Chase checking account as I was planning to do some house renovations. I'm not sure I'll bother to move it.

jminv
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Re: why do banks bother offering lousy CD rates?

Post by jminv » Sat Jan 13, 2018 12:14 pm

CppCoder wrote:
Sat Jan 13, 2018 10:26 am
I see a lot of responses along the lines of "because they can." I don't think that's correct (but really don't know any better than others). I think it's more akin to why a financially secure person might choose not to have a mortgage even though they could. If you have enough money, why would you borrow some from others?
Are you suggesting that CD rates are low because banks don't want deposits? Banks take in deposits at zero to a marginal rate and lend out money at a higher rate. They make money on this spread. Low cost deposits are a source of strength for a bank and one reason banks have branches - to collect low cost deposits. Deposits are much lower risk funding than relying on short term market for funding as financial institutions discovered not long ago. If a bank offers a 0.1% 1 year CD and invests the money in a risk-free 1 year treasury at 1.78%, the reap the difference. That's a risk-free example. They obviously go for higher yield lending options. It's also a win for the customer that was also fine with their money earning 0% in a FDIC insured checking account.

You will notice that most physical banks have very similarly (low) yields even as rates rise from historic lows. They don't have much deposit competition and don't want to encourage its development either. They have bank branches for a reason - to target people who find these offers interesting. Their CD customers tend to be older, risk-averse, and not users of comparison sites. They like to know their bank.

Online banks have CD offerings that target risk averse customers who are more technologically literate and realize a bank is a bank. Still - they earn a spread. Since they have lower costs than a physical bank they still profit handsomely from such offers.

keaton
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Re: why do banks bother offering lousy CD rates?

Post by keaton » Sat Jan 13, 2018 12:44 pm

it took me a long time to get my parents out of their .01% B&M account and into at least Ally. Very hard for them to understand the concept that the B&M bank was making a killing off of them. Their IRAs are still trapped in crappy CDs from the same bank.

In my opinion these banks take advantage of the elderly and young unsuspecting people. It’s a shame...

anoop
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Re: why do banks bother offering lousy CD rates?

Post by anoop » Sat Jan 13, 2018 12:46 pm

Prior to the financial crisis, I remember my CU and big banks offering long term CDs (5 year) that were at least competitive with the rate offered by online savings accounts. After the crisis, they dropped the rates to abysmal levels and they have not moved at all despite all the recent fed rate increases. My CU has a decent rate for 5 year CDs, but that's it.

anoop
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Re: why do banks bother offering lousy CD rates?

Post by anoop » Sat Jan 13, 2018 12:48 pm

keaton wrote:
Sat Jan 13, 2018 12:44 pm
it took me a long time to get my parents out of their .01% B&M account and into at least Ally. Very hard for them to understand the concept that the B&M bank was making a killing off of them. Their IRAs are still trapped in crappy CDs from the same bank.

In my opinion these banks take advantage of the elderly and young unsuspecting people. It’s a shame...
That is my concern too -- that they are actually preying on those that aren't paying attention.

I am starting to think that the best fixed income investments would be treasuries. At least you get what everyone else is getting. It may not be the best rate, but it is in some sense a market rate.

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simplesimon
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Re: why do banks bother offering lousy CD rates?

Post by simplesimon » Sat Jan 13, 2018 12:52 pm

Lots of people still value talking to someone in person at a branch.

anoop
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Re: why do banks bother offering lousy CD rates?

Post by anoop » Sat Jan 13, 2018 12:54 pm

hudson wrote:
Sat Jan 13, 2018 9:57 am
I haven't compared Vanguard to Fidelity on fixed income or anything....not sure.

Why do banks bother? The question that I ask is where can I get the best rates...after taxes.

You probably saw this discussion on Brokered CDs; I've never bought one because I found better deals at credit unions.

viewtopic.php?p=3618893#p3618893
I hadn't seen that discussion and wasn't aware there were commissions on brokered CDs. My understanding was that the commission was implicit (if there was any) at least at Fidelity.

There always seem to be better yields at some CU or the other, but I am trying to avoid being a yield chaser with too many financial institutions.

Wakefield1
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Re: why do banks bother offering lousy CD rates?

Post by Wakefield1 » Sat Jan 13, 2018 4:02 pm

I have been trying to get my elderly mother interested in placing some of her CD/Savings in the Credit Union which is just other side of the intersection from the bank she loves (used to be Arlington Trust) where she might get $50. a month instead of a nickel (just a small exaggeration)
Some people such as my mother simply let the CDs roll over without thinking about it-perhaps that is why those banks don't do any better than they do -and the Credit Union has a "no penalty" CD

CppCoder
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Re: why do banks bother offering lousy CD rates?

Post by CppCoder » Sat Jan 13, 2018 4:44 pm

jminv wrote:
Sat Jan 13, 2018 12:14 pm
CppCoder wrote:
Sat Jan 13, 2018 10:26 am
I see a lot of responses along the lines of "because they can." I don't think that's correct (but really don't know any better than others). I think it's more akin to why a financially secure person might choose not to have a mortgage even though they could. If you have enough money, why would you borrow some from others?
Are you suggesting that CD rates are low because banks don't want deposits? Banks take in deposits at zero to a marginal rate and lend out money at a higher rate. They make money on this spread. Low cost deposits are a source of strength for a bank and one reason banks have branches - to collect low cost deposits. Deposits are much lower risk funding than relying on short term market for funding as financial institutions discovered not long ago. If a bank offers a 0.1% 1 year CD and invests the money in a risk-free 1 year treasury at 1.78%, the reap the difference. That's a risk-free example. They obviously go for higher yield lending options. It's also a win for the customer that was also fine with their money earning 0% in a FDIC insured checking account.
Yes, that's what I'm suggesting, depending on the bank. If Chase or BOA relied on making a 1.5% return, I suspect they wouldn't be able to afford to keep the branches open let alone make a profit on top of that. Who would invest in a business making 1.5%? I can go buy treasuries myself to make that. In fact, I bet Chase would rather I not have much money in my accounts with them so they could make some real money on overdraft fees and the like...

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saltycaper
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Re: why do banks bother offering lousy CD rates?

Post by saltycaper » Sat Jan 13, 2018 5:13 pm

anoop wrote:
Sat Jan 13, 2018 12:46 pm
Prior to the financial crisis, I remember my CU and big banks offering long term CDs (5 year) that were at least competitive with the rate offered by online savings accounts. After the crisis, they dropped the rates to abysmal levels and they have not moved at all despite all the recent fed rate increases. My CU has a decent rate for 5 year CDs, but that's it.
This was my observation as well. I used to have Internet bank CDs and savings as well as B&M bank CDs until my CDs came up for renewal c2010-12 and the B&M rates were awful. Pretty much have been ever since.
Quod vitae sectabor iter?

anoop
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Re: why do banks bother offering lousy CD rates?

Post by anoop » Sat Jan 13, 2018 5:18 pm

TwstdSista wrote:
Sat Jan 13, 2018 5:31 am
My credit union is not super competitive with savings and CD rates, but multiple accounts and multiple financial institutions drive me (and the husband) up a wall. So we keep it simple -- one CU and one brokerage.

I'll just take my 1% interest and meander on my way....
I admire you both for choosing simplicity over chasing returns. I'm trying to simplify. Hope to get to where you guys are or at least down to 3 accounts from my current 5. And that does not even include treasury direct for i bonds and e bonds.

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sergeant
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Re: why do banks bother offering lousy CD rates?

Post by sergeant » Sat Jan 13, 2018 6:25 pm

My MIL has most of her "savings" in an account at a B&M paying just about zilch. I pity the bank! She is in there several times a month for hours getting help balancing her check register, questioning her mailed statements, drinking the free coffee, and complainng to the manager if an employee looks at her wrong.

A couple decades ago I set her IRA up at Vanguard. For years I took care of it for her. A few years back she started to not trust me and has been going it solo. She calls my wife and complains about her Vanguard account and hoe she lost money back in 2009.
Lincoln 3 EOW!

rec7
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Re: why do banks bother offering lousy CD rates?

Post by rec7 » Sat Jan 13, 2018 7:57 pm

Wakefield1 wrote:
Sat Jan 13, 2018 4:02 pm
I have been trying to get my elderly mother interested in placing some of her CD/Savings in the Credit Union which is just other side of the intersection from the bank she loves (used to be Arlington Trust) where she might get $50. a month instead of a nickel (just a small exaggeration)
Some people such as my mother simply let the CDs roll over without thinking about it-perhaps that is why those banks don't do any better than they do -and the Credit Union has a "no penalty" CD
Where I live there is a big bank paying .01 and a credit union paying 1.1 the two are only about 1.5 blocks from each other.
Disclaimer: You might lose money doing anything I say. Although that was not my intent. | Favorite song: Sometimes He Whispers Jay Parrack

anoop
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Re: why do banks bother offering lousy CD rates?

Post by anoop » Sat Jan 13, 2018 7:59 pm

sergeant wrote:
Sat Jan 13, 2018 6:25 pm
A couple decades ago I set her IRA up at Vanguard. For years I took care of it for her. A few years back she started to not trust me and has been going it solo. She calls my wife and complains about her Vanguard account and hoe she lost money back in 2009.
Haha... did you get her approval on the IPS? :D

rec7
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Re: why do banks bother offering lousy CD rates?

Post by rec7 » Sat Jan 13, 2018 8:00 pm

sergeant wrote:
Sat Jan 13, 2018 6:25 pm
My MIL has most of her "savings" in an account at a B&M paying just about zilch. I pity the bank! She is in there several times a month for hours getting help balancing her check register, questioning her mailed statements, drinking the free coffee, and complainng to the manager if an employee looks at her wrong.

A couple decades ago I set her IRA up at Vanguard. For years I took care of it for her. A few years back she started to not trust me and has been going it solo. She calls my wife and complains about her Vanguard account and hoe she lost money back in 2009.
LOL some of you guys kill me.
Disclaimer: You might lose money doing anything I say. Although that was not my intent. | Favorite song: Sometimes He Whispers Jay Parrack

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StormShadow
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Re: why do banks bother offering lousy CD rates?

Post by StormShadow » Sat Jan 13, 2018 8:43 pm

anoop wrote:
Sat Jan 13, 2018 12:48 pm
keaton wrote:
Sat Jan 13, 2018 12:44 pm
Very hard for them to understand the concept that the B&M bank was making a killing off of them.
That is my concern too -- that they are actually preying on those that aren't paying attention.
Preying on them? That's a little harsh. I mean, the unauthorized Wells Fargo accounts is one thing... but choosing a smaller interest rate than an online account is just a matter of personal choice.

B&M has its place for a lot of folks, including my family. We use a B&M TD Bank for regular checking at 0.1% because I value the convenience of their hours (including weekends), face-to-face immediate assistance and easy access to ATM's. I'm still not comfortable depositing checks through my iPhone. We also have an online account at Capital One 360 at 1.3% for most of our emergency funds. Been very satisfied with both.

sport
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Re: why do banks bother offering lousy CD rates?

Post by sport » Sat Jan 13, 2018 9:06 pm

StormShadow wrote:
Sat Jan 13, 2018 8:43 pm
Preying on them? That's a little harsh. I mean, the unauthorized Wells Fargo accounts is one thing... but choosing a smaller interest rate than an online account is just a matter of personal choice.
When a bank offers an attractive CD rate, and then it automatically renews at a very low rate, "preying" is not too harsh IMO. This is especially true if the customer is elderly and not as aware as they once were.

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Sandtrap
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Re: why do banks bother offering lousy CD rates?

Post by Sandtrap » Sat Jan 13, 2018 10:25 pm

I spoke to my personal banker about this once. She said that retirees are comfortable with what they've done for decades. Many have their entire retirement in CD's. A half percent increase sounds great to them. She also said it was mostly seniors who stick with banks and cd's. I don't know about elsewhere. This is a retirement region, Prescott, Scottsdale, Phoenix. Lot's of seniors. I do know quite a few seniors who have gotten burned by brokers and FA's so they stick to CD's and R/E.
j :D

Actionably: if some of the Scottsdale seniors have 8 figures in CD's plus pension and so forth. They're doing fine.

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