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What Savers Should Expect as Banks Recover


This Kiplinger article describes how banks are in the process of recovering. As you might guess, it's a slow process, and unfortunately, the near-term environment doesn't bode well for savers. First, higher FDIC assessments will be costing banks more. From the article:
higher Federal Insurance Deposit Corporation (FDIC) assessments will sting, taking a bite out of banks' precious capital cushions. "Last year, we paid $8,000 for FDIC insurance," says Terry Jorde, CEO of CountryBank USA in North Dakota. "This year, we could pay up to $150,000, and that takes away from our ability to lend."

Credit unions are also facing a similar issue.

The other issue is that many banks are being flooded with deposits:
Among smaller banks, jittery customers are flooding those perceived as stable with deposits.

And banks are having difficulty in making new loans:
Already some more-aggressive banks are eager to lend but are finding few qualified and interested borrowers.

So with a flood of deposits combined with few loans, it doesn't look good for deposit rates.

With the potential for more rate cuts, it may seem hopeless to switch banks just for what may be a temporary hike in interest rates. Just remember that this is what banks are hoping people will think. Competition is an important factor that is preventing deposit rates from falling to near zero percent. The more we are willing to move our money, the more competition there will be.

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Anonymous   |     |   Comment #1
I read this quote with a bit of doubt. I find it pretty hard to believe that the FDIC charge (for similar coverage...) is ~ EIGHTEEN TIMES the prior years rate...???
Anonymous   |     |   Comment #2
Saving rates at a bank are not directly tide to lending rates.
When we make a deposit, the money from that day are swept to all kinds of overnight bank savings instruments, which includes treasuries, MM accounts, international sweep accounts, short and long AAA insured investment bonds and so on.
The small banks are limited to the options of sweep accounts then the big banks are, however, the banks usually make 1-2% above the deposit rates paid to their customers.
The lending rates are tide to the market conditions of long term (10) years or longer terms paid by the treasuries and the spread is usually 2% above those rates.

Remember, our savings are liabilities to the banks and the loans are assets to the banks and can not be intermingled on the books and the profit from liabilities and loans are classified as income, unless the bank sells the loan assets to someone else, then the the ratio of assets to liabilities determines the soundness of the bank, which can make the rating to fall and the bank is forced to raise the rates to attract new capital.
It is a wishes circle and we all pay the price of down economy and low interest rates.
Anonymous   |     |   Comment #3
"It is a wishes circle and we all pay the price of down economy and low interest rates."

And the manipulation of the Federal Reserve to hold rates at artificially low levels. Also the fictitious way the rate of inflation is calculated.
Anonymous   |     |   Comment #4
I believe the plain fact is most banks are awash with cash and have nobody to lend it to. With the low demand for loans, there is no need to raise interest rates on savings and CD accounts to gather in even more cash for lending.
It will take quite some time to turn things around with all the thousands of good paying jobs being lost. A good amount of the jobs here in the U.S. are lost for ever.
gaelicwench   |     |   Comment #5
I received a notice in my email from FNBO last night notifying me that their rate had dropped yet again. A mere 1.65%.....

Have to say it makes no sense to park my EF there. Think I'll switch to SmartyPig. They're pretty slow about lowering their rates, if they're going to.
Anonymous   |     |   Comment #6
Believe it. The FDIC has talked about using .20% of Total Deposits and now talking .05% of Total Assets minus T1 Capital with the bigger bank paying more. Our FDIC payments last year totaled Apprx $94M and now it looks like it is going to be $168M (75% increase) in 2009. Go to to find out more.

I read this quote with a bit of doubt. I find it pretty hard to believe that the FDIC charge (for similar coverage...) is ~ EIGHTEEN TIMES the prior years rate...???

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