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POSTED ON BY Ken Tumin
This Wall Street Journal article describes another issue in addition to the credit crunch that's hurting banks. Competition for deposits among banks remains intense, and this is reducing the interest margins between banks' loan and deposit rates. The most affected are small and midsize banks which tend to rely on this for much of their profits. Larger banks can derive more income from other areas like investment banking.
The article mentioned both Countrywide and E*Trade as two banks that have been hit hard by the credit crunch but are still offering some of the highest savings and CD rates. This puts pressure on other banks. I just saw an example of this when a reader recently emailed me that he was able to get a WaMu branch manager to match Countrywide's 5.50% 6-month CD.
The article didn't mention how the internet is helping to put pressure on banks to keep deposit rates high. With the information on the internet combined with how the internet can make it easy to move money, banks are going to have to compete for our money.
Thanks to the reader who mentioned this article in the comments.
The article mentioned both Countrywide and E*Trade as two banks that have been hit hard by the credit crunch but are still offering some of the highest savings and CD rates. This puts pressure on other banks. I just saw an example of this when a reader recently emailed me that he was able to get a WaMu branch manager to match Countrywide's 5.50% 6-month CD.
The article didn't mention how the internet is helping to put pressure on banks to keep deposit rates high. With the information on the internet combined with how the internet can make it easy to move money, banks are going to have to compete for our money.
Thanks to the reader who mentioned this article in the comments.
There are plenty of decent banks but WaMU is not one of them. They are not honorable.
If you live in San Francisco you have a plethora of quality banking options in town. WaMU is NOT one of them.
Stay clear of Countrywide! They are desperate, and will falsify documents to stay afloat. All they'll give you is stress about who is going to own your CD once they're toast. I'd bail on them now while you still may have some control over which bank will own your CD.
Seems like more shaky today, don't know should I put do that?
I know it doesn't work like that but dreams are funny.
Hey, if they can get Mr. Supertan to do a perp walk, it will all be worth it.
On a serious note, no reason to break a CD and pay a penalty at this point. You'll lose less on a takeover , if it comes to that.
Stated another way, they are paying depositors more for a shorter term than they are collecting from borrowers, presumably using those same, fungible, dollars. And that's before you factor in even a modest default rate, overhead, and profit (errr, what profit?)
And folks thought the dot coms had a bad business plan.
Yours,
Bozo
You're correct, of course, regarding the origination fee (etc), but it did strike me as funny that the bank was cutting it so close. Maybe Jeff Bezos is on the Board of Directors, you know, let's sell the books at a loss so we can make money on the hand tools? Then nobody buys the hand tools.
Anyway, while we're on the subject of KeyDirect, so far so good on opening up the 10 year CD (a trustee-to-trustee transfer of an IRA). Given the way rates are headed (ouch), getting 5.75% for 10 years looks pretty good. Needless to say, other rungs on the ladder come due much sooner, and I'm hoping we don't go back to the "bad old days" of 3%.
Yours,
Bozo