I’m amazed that the big banks like Bank of America are able to increase their deposit levels when their rates are so low. That is what I was thinking when I was reviewing Bank of America’s fourth quarter earnings report. Here are a few excerpts from the report:
Period-end Consolidated Deposit Balances Increased $14 Billion to Record $1.12 Trillion
Average deposit balances for the quarter of $528.8 billion increased $44.7 billion, or 9 percent, from the year-ago quarter. The increase was driven by growth in liquid products in the current low-rate environment and the $20 billion average impact of deposit transfers primarily from Global Wealth and Investment Management (GWIM). The average rate paid on deposits declined to 8 basis points in the fourth quarter of 2013 from 16 basis points in the year-ago quarter, due to pricing discipline and a shift in the mix of deposits.
As you can see, deposits increased and the average rate paid on deposits declined. Bank of America credited the decline of the average rate partly to "pricing discipline" which sounds like a euphemism for offering low deposit account rates.
Bank of America was profitable. In fact, Bank of America, Chase and Wells Fargo have reported earnings for the fourth quarter that have exceeded expectations. According to this CNN article:
Bank of America impressed Wall Street Wednesday with better-than-expected earnings and revenue for the fourth quarter, continuing a trend of solid results from the nation's largest banks.
The company's consumer and business banking division, which includes branch banking and loans for small businesses, reported a $2 billion profit, up nearly 40% from a year earlier.
So with deposits and profits increasing, banks can offer very low interest rates. You can see how low by looking at Bank of America’s rate sheet. Here are a couple of examples as of 1/24/2014:
- 0.03% 1-year CD
- 0.15% 5-year CD
If you have any CD maturing at Bank of America, I don’t see any reason to renew it. Make sure you don’t let any CDs automatically renew. If you did that at Bank of America, you could be stuck in a CD with a very low rate. So make sure you review your options well before the end of the CD grace period.