Dedicated to Deposits: Deals, Data, and Discussion

More Savings Account Rate Cuts - Update

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Online banks continue to cut rates on their savings accounts and CDs. One small bit of good news is that it's looking unlikely we'll see another emergency cut by the Fed thanks to the January retail sales data (see Times Online article). However, most do expect another 50-basis-point rate cut at the Fed's next meeting on March 18. So expect to more cuts by the banks.

Below are some of the latest savings account rate cuts since I reported on E*TRADE's rate cut on Tuesday:

Also note that it's becoming difficult to find banks offering CD yields over 4% especially for terms over 6 months. For example, the highest CD yield offered by E-LOAN is now only 3.96% APY for a 5-year term.
  Tags: Grand Yield Direct, Zions Bank, WTDirect, savings account, E-LOAN.com

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Comments
21 comments.
Comment #1 by Anonymous posted on
Anonymous
Don't leave out igobanking which made a cut yesterday evening:
4.05% (down from 4.20%)

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Comment #2 by Anonymous posted on
Anonymous
Some of these rate cuts, compared to what we were getting last year, are just horrendous. And they will go down even lower after the Fed cuts the rate again.

I wonder what would happen if every single depositer pulled out all their money in protest. Would at least a couple of these online banks then be forced to raise their rates in an attempt to get the deposits back?

1
Comment #3 by SingleGuyMoney (anonymous) posted on
SingleGuyMoney
E*Trade is @ 4.10% down from 4.40%.

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Comment #4 by SVG (anonymous) posted on
SVG
 

Anon,

    >>I wonder what would happen if every single depositer pulled out all their money in protest. Would at least a couple of these online banks then be forced to raise their rates in an attempt to get the deposits back?<<

If indeed all the depositors left with all their deposits, then following are the likely scenarios:

1) The bank/CU in question is very unlikely to have such a large cash position to satisfy the withdrawal request from every depositor. Therefore the bank/CU will become insolvent and FDIC/NCUA will step in immediately and cover the insured amounts.

2) If the depositors expand their protest to more (and more) banks/CU successfully then it will cause the insurance entities such as FDIC/NCUA to go insolvent and that will be a nightmare scenario for Federal Reserve / US Treasury. This scenario is possible, but very very unlikely. (This is like financial mass suicide, and I doubt if many depositors will be eager to commit it. *smile*)

3) When every depositor pulls his/her deposit, most probably he/she will deposit is elsewhere rather than storing actual cash, therefore net effect is likely to be cash outflow from 1/2/3/... banks/CUs to different banks/CU. In this case only the bank/CU that is the target of the protest will close down, rest of the economy will survive. And the other banks/CUs are unliekly to raise their interest.

- SVG

 

1
Comment #5 by Cory (anonymous) posted on
Cory
Amboy Direct is at 4.25% with a minimum initial deposit of $100. http://amboydirect.com/

1
Comment #6 by Anonymous posted on
Anonymous
Suggesting more rate cuts to follow, all the Fed (Bernanke)seems to be doing is bailing out the stock market and all his high flying financial buddies.

The rate cuts are not being passed on to the borrowing public. Infact the big banks are raising their credit card rates and mortgage rates while they are borrowing cheaper money from the Fed. (our tax money)

In the mean time, we savers are taking it on the chin.

Also the European countries and Austrailia are either holding rates steady or raising them. They at least recognize inflation when they see it. Our Fed is turning a bling eye to inflation.

1
Comment #7 by Don't Tase Me, Bro (anonymous) posted on
Don't Tase Me, Bro
So, SVG, let's take one specific example. Hypothetically, E-Trade lowers their rate to 3% but Countrywide keeps their 4.75% rate.

Everyone with E-Trade transfers their money to Countrywide in a mass exodus, and tons of media attention is given. You don't think it is possible that E-Trade would then raise their rate rather than go under? You don't think it is possible that other banks will see all the publicity and then think twice before taking their rates too low?

It's possible.

I am not saying everyone should fully remove their money from every bank. I am just saying that one is enough, making sure lots of media coverage is given.

1
Comment #8 by SVG (anonymous) posted on
SVG
 

Don't Tase Me, Bro,

Did you notice the word I put in boldface viz. unlikely ? (Unlikely admits what is 'possible', and stresses what is 'probable'.)

Anyways, the interest rate setting decisions of the banks/CUs are decided by many factors. The major ones are:

1) FED funds rate / PRIME rate / LIBOR rate etc.
2) FED mandated cash position
3) What is the net rate at which the bank/CU is earning
4) What is the net rate at which the bank/CU is paying
5) The expected profit-margin for the bank (or expected break-even for the CU)

The media coverage/attention is a minor factor, I doubt if would be among top 3.

- SVG

 

1
Comment #9 by Don't Tase Me, Bro! (anonymous) posted on
Don't Tase Me, Bro!
I normally agree with your comments, SVG. But I respectfully disagree about one particular thing only: Just the part about some massive publicity. I think that if there was massive publicity where there was a mass exodus of funds (and I am talking about a huge amount of money here), expressly caused by a bank who lowered their rate to 3% or less, and then that back went under, I think the Fed and other banks might take notice. Perhaps not all, but at least one or more might then think twice before dropping below 3%. And maybe the Fed might at least express a little more concern on this subject. Because right now, the Fed is only concerned with helping the stock and housing markets. They are expressing no concern at all how people are making less money on their savings from government insured accounts.

1
Comment #10 by SVG (anonymous) posted on
SVG
 

don't Tase Me, Bro,

Sure ... if the depositors do mount a successful protest and make an 'example' out of a bank/CU then it will be get publicity and the other banks/CUs will take a note.

However the key factors about setting the rate remain exactly same as they always have been. Banks/CUs simply cannot afford to put media attention/coverage above/on-par with current FED funds rate, FED mandated cash position, their own profit-margin/break-even- level.

    >>Perhaps not all, but at least one or more might then think twice before dropping below 3%. <<

Nope ... I don't think so. The purpose of banks/CUs is profit/break-even respectively. I'm sure the banks/CUs will willingly choose to get out of business, than to give-in to something that will threatens their profit/break-even.


    >>because right now, the Fed is only concerned with helping the stock and housing markets. They are expressing no concern at all how people are making less money on their savings from government insured accounts.<<

I've heard/read this misconception expressed by many often enough. However this is not true. Federal Reserve has its dual mandate. Serving stock market, expressing concern for the savers definitely are not those two mandates. *smile*

I welcome your disagreement. Perhaps it brings forward the ideas/discussion that otherwise will remain unsaid.

- SVG

 

1
Comment #11 by SVG (anonymous) posted on
SVG
 

Anon,

    >>Suggesting more rate cuts to follow, all the Fed (Bernanke)seems to be doing is bailing out the stock market and all his high flying financial buddies.<<

Sure. To an uninformed person it indeed may seem that way. But that's not true !


    >>The rate cuts are not being passed on to the borrowing public. Infact the big banks are raising their credit card rates and mortgage rates while they are borrowing cheaper money from the Fed. (our tax money)<<

Plenty of mortgage rates are tied to LIBOR rate. FOMC does not set LIBOR rate. Therefore a straight 'pass-down' is quite unlikely.


    >>In the mean time, we savers are taking it on the chin.<<

Yes you are !


    >>Also the European countries and Austrailia are either holding rates steady or raising them. They at least recognize inflation when they see it. Our Fed is turning a bling eye to inflation.<<

You might recall that I mentioned about buying foreign currency on this blog somewhere. Perhaps now you know one reason why !

- SVG

 

1
Comment #12 by Anonymous posted on
Anonymous
Quote: "Plenty of mortgage rates are tied to LIBOR rate. FOMC does not set LIBOR rate. Therefore a straight 'pass-down' is quite unlikely."

Well then, Bernanke's interest rate cuts are not being made to help the average consumer after all.

1
Comment #13 by SVG (anonymous) posted on
SVG
 

    >>Well then, Bernanke's interest rate cuts are not being made to help the average consumer after all.<<

Err ... what are Bernanke's interest rate cuts ?

Of course what you mean is the FED funds rates revision done by the FOMC that consists of 12 voting members, which was originally created by Title 12 of the United States Code by the US congress. As we all know the Congress is for the people and by the people. In short, the Federal Reserve and FOMC serves us - the people. We are collectively responsible for the decisions made by our FOMC on our behalf to guide our monetary policy.

Okay now that I'm making you partly responsible for your/our FOMC is doing / has done, let us proceed.

What exactly have you asked the FOMC to do ? Have you/we asked it to help the average consumer ? Are some average consumers savers ? Are some average consumers borrowers ? Are some average consumers members/owners of the CUs/Banks ? ... Well ?

Would you say that an average US citizen will have S&P 500 in his/her portfolio somewhere ? If so, then like it or not, he/she is a part owner of CitiCorp and Bank Of Amerca and Wells Fargo Bank and ... so on. *smile*

Bottom line ... I'm not sure who an average consumer is, but I'm sure of what we have asked our Federal Reserve to do (to serve us). *smile*

- SVG

 

1
Comment #14 by Anonymous posted on
Anonymous
It is kind of odd that banks are offering a product they are losing money on (4% savings accounts) and everyone is complaining it is not fair they are following the Fed Funds rate (and only a small portion of it actually).

Keep in mind that they are only earning 3% on their overnight money while paying 4.00%+

1
Comment #15 by Ugly Tie Man (anonymous) posted on
Ugly Tie Man
It won't stay 4% for very long. The only reason some are still 4% is because they are lowering their rates slowly, to try and avoid lots of withdrawals.

1
Comment #16 by Anonymous posted on
Anonymous
Keep in mind that they are only earning 3% on their overnight money while paying 4.00%+

By Anonymous, at 6:19 PM, February 14, 2008

But the interest rates the banks are charging for consumer loans are much higher. In fact mortgage rates have risen to their highest level in the last five weeks.

1
Comment #17 by Anonymous posted on
Anonymous
Err ... what are Bernanke's interest rate cuts ?

Of course what you mean is the FED funds rates revision done by the FOMC that consists of 12 voting members, which was originally created by Title 12 of the United States Code by the US congress. As we all know the Congress is for the people and by the people. In short, the Federal Reserve and FOMC serves us - the people. We are collectively responsible for the decisions made by our FOMC on our behalf to guide our monetary policy.

Okay now that I'm making you partly responsible for your/our FOMC is doing / has done, let us proceed.

What exactly have you asked the FOMC to do ? Have you/we asked it to help the average consumer ? Are some average consumers savers ? Are some average consumers borrowers ? Are some average consumers members/owners of the CUs/Banks ? ... Well ?

Would you say that an average US citizen will have S&P 500 in his/her portfolio somewhere ? If so, then like it or not, he/she is a part owner of CitiCorp and Bank Of Amerca and Wells Fargo Bank and ... so on.

Bottom line this whole mess was caused by greenspam and the financial bubbles he caused, i.e. housing bubble credit bubble, and so on. IMHO, the US is going down, hard...deflation and possible depression. I really think this will happen, helicopter ben is out of fuel, and he is going down, and so are we.

I am glad I shorted the homebuilders, banks, and mortgage companies 2 years ago.

The housing bubble has burst!

Got popcorn?

1
Comment #18 by Depressed (anonymous) posted on
Depressed
WaMu Online Savings just lowered their rate to 3.93%, which is 4% APY (from 4.25% APY). I have money with them. Bummer!

1
Comment #19 by Anonymous posted on
Anonymous
Meantime, stick with HSL guidelines: avoid time deposits, switch to 2-5 yr govt bonds (non-US$), step up gold purchases (bullion & shares), exit US$, buy a lot of Swiss francs (via SwFr govt bonds), avoid debt, exit money-mkt funds, buy commodities &/or food stocks. Stockpile more cash in hand.

1
Comment #20 by freeto (anonymous) posted on
freeto
We are so lucky to have SVG's meticulous analysis of everyone's thoughts and comments.

1
Comment #21 by Anonymous posted on
Anonymous
"Err ... what are Bernanke's interest rate cuts ?

Of course what you mean is the FED funds rates revision done by the FOMC that consists of 12 voting members..."

And Congress actually passes all tax cuts, yet people refer to them as "the Reagan tax cuts" or "the Bush tax cuts."

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