Big Banks, Bad CD Interest Rates

Large banks often offer the worst CD rates. The largest US banks are awash in excess reserves. These banks are in little need of new funds since their loan activities are low and their cash on hand is high. Since they have little need for new customer funds in which they would have to pay interest, these banks are offering very low interest rates on their depository products including CD rates.

Even though the CD rates are low, the amount of money held in these bank CD accounts with the mega banks is startling. Based on statistics from the FDIC, here are the deposit summaries of the top five largest US banks at the end of the 1st quarter:

Chase Bank had $100,733,000,000.00 in total certificates of deposit or time deposits.
Bank of America had $168,704,290,000.00 in total bank CDs or time deposits
Well Fargo had $105,258,000,000.00 in total time deposits.
Citibank had only $51,306,000,000.00 in total time deposits
US Bank had $32,281,519,000.00 in CDs or total time deposits.

Maybe the zeros made reading the figures confusing, that’s over $100 billion at Chase Bank in CDs and $168 billion and some change at Bank America.

Today Bank of America CDs are under 1.00% for CD terms up to 2 years in length. The 6 month Bank America CD is 0.35%, a 1 year Bank America CD has a rate of 0.80% and the 2 year CD rate is 1.11%.

Chase Bank CDs are similar. The bank CDs at Chase have regional pricing. In Illinois, a Chase Bank CD for a 6 month term is 0.25%. A one year CD rate at Chase Bank is 0.25%, although a promotional 13 month special is at 1.01%. The 2 year CD rate for Chase Bank CD in IL is at 1.01%. These CD rates are based on having a qualified Chase checking account as well.

Citibank CD rates are not behaving any better. The 6 month CD rate from Citibank is at 0.35%. A Citibank CD with a 1 year term is at 0.80% and 2 year CD rate at Citibank is at 1.01%.

Looking at the current slump in the CD interest rates with the large banks combined with the deposit amount consumers are holding with these banks is a wake up call to start shopping around for the best bank rates.

As the FDIC reminds consumers in their publications, “The bottom-line question you should always ask yourself is: Does this investment make sense for me?”

Well, it sure does if you want to help the profitability of these banks. Chase Bank’s 1st quarter deposit margin was 3.02%. That may not mean much. In the first quarter of 2010 Chase Bank reported a profit of $3,326,000,000.00. That’s $3.3 billion for 90 days or $36,955,555.56 per day or about $1.5 million per hour in profits.

American Express Bank had total time deposits of only $6,684,310,000.00 at the end of the 1st quarter or roughly 4% of the amount held at Bank of America. While the CD rates at American Express are not the best national CD rates, their bank rates far surpass those of Bank America. An American Express CD with a 6 month term currently yields 1.00%, an American Express CD with a 1 year term is at 1.50% and the 2 year CD at Am EX has an interest rate of 2.00%.

One of the top five banks had this comment in their annual report regarding their better than healthy profits, “deposit margin expansion year over year reflects disciplined pricing strategy and a portfolio shift to wider spread deposit products”. Read, the bank is not paying much to its depositors on which it makes the oversized profits.

Another bank had this comment “Service charges on deposit accounts of $1.3 billion, down 4 percent year over year, as consumers have decreased their spending and increased their savings, which offset the impact on service fees from continued strong account growth.” Read, strong saving and account growth by its customers that are in turn rewarded with a rate of return on their savings that yields peanuts.

The breakdown was not too pleasant for the certificate of deposit rates that these banks are offering, yet consumers continue to fill their coffers with savings. Shop and compare the best CD rates before handing your hard earned dollars to a bank that makes more than its fair share of cash. ( boy, that needs a better closing )

View the best national CD rates here.

Tags: 6 month CD rate, bank CD, Bank of America CDs, best CD rates, CD interest rates, CD rates, Chase Bank CDs, Citibank CD rates, one year CD rate

This entry was posted on Thursday, May 27th, 2010 at 4:08 pm and is filed under Money Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.