ABA believes it is completely inappropriate, and indeed risky, for GMAC Bank/Ally Bank to be allowed by the regulators to continue to pay rates well above the market. We urge you to apply the same principles that would apply to other banks in a comparable situation to GMAC/Ally. Thank you for considering our views on this issue.
Haven't deposit rates been driven down low enough? How much more do they want savers to suffer? I'm afraid the ABA isn't alone on its anger over "high" deposit rates. You can hear Jim Cramer's complaints about "high" deposit rates in his Wednesday interview with Sheila Bair. According to Bair, the FDIC will be holding a board meeting today to discuss this issue.
The ABA and the FDIC need to remember what the real problem is. A reader in my previous post summed it up well:
What killed profitability for banks was their idiotic investment in risky mortgages, not their paying 2% interest to savers.
Paying 2% deposit rates isn't the problem. The problem is with the loans. It's hard enough for savers now to live with 2% rates. Don't punish us any more with even lower rates.
As stated in the letter, there is already regulations that prevent certain banks from paying deposit rates that exceed 75 basis points from the rates of similar types of accounts in the bank's normal market area or nationwide. Based on this, I don't consider the rates Ally Bank has been offering as excessive. Their most competitive rates include 2.80% APY for a 12-month CD and a 2.25% APY for the savings account. Subtract 75 basis points and the rates become 2.05% APY and 1.50% APY. These are reasonable for internet accounts. As you can see in my weekly rate summary, many healthy banks are offering internet accounts with rates higher than these.
Thanks to the reader tuphat who mentioned this letter in the Daily News & Deals Page.
UPDATE #3: Here is some contact information to let the FDIC know how you feel about this. The physical mail address used in the ABA letter is:
The Honorable Shiela Bair
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429-9990
Several FDIC email addresses are listed in the FDIC Contact Us Page. The Ombudsman may be a good contact regarding the handling of this board meeting and how this new rule was passed. You may also want to write to your congressman and senators. You can write to your Congressman online using this service.
Reward Checking at Risk?
A reader posted this link of comments by two banks on this interest rate restriction rule. One of the banks is Libertad, and its CEO provides 20 pages of comments. Libertad Bank is a small bank that has been offering a reward checking account since last year. On page 10 the Libertad CEO comments about how the FDIC rule may affect reward checking accounts:
Recently the FDIC has indicated that it may consider the bank's 'Rewards Checking' accounts as brokered deposits
UPDATE #2: The FDIC has just issued a press release on its rule changes regarding restricting interest rates. There's also a link to the Final Rule document.
Update: Some reports of the today's FDIC board meeting have come out. According to this Reuters article:
[FDIC] voted to bar a bank with insured deposits from paying interest rates that "significantly exceed" prevailing market rates if the bank is deemed not well capitalized.
And according to this Dow Jones article:
The new rules call for the FDIC to calculate and publish a "national rate" on its Web site that would set the national standard that under capitalized banks would need to adhere to when advertising interest rates on accounts.