If you're trying to find the best rates for your large deposit, you probably already know about this. Banks often give their best rates only up to a certain balance. This goes beyond reward checking. It applies to many internet savings accounts. It used to be common for banks to reward customers with large deposits with the best rates. In the case of reward checking accounts, it's the debit card usage and the relationship that the banks want. Larger balances aren't as valuable to the banks. For internet savings accounts, there are no debit cards but the banks may still want a long-term relationship in which the customer will migrate to their other services like checking, credit cards and loans. The higher interest rate is more to attract this relationship instead of the deposit.
Typically when the rate is lower for a higher balance, the lower rate only applies to the portion of the balance above the tier. SmartyPig became the exception to this rule when it introduced its $50K tier last year. If the balance goes over $50K, the entire balance will earn the smaller yield.
Internet Bank Promotional Rates
When internet banks offer a promotional rate, there is often a balance cap. EverBank's 3-month intro rate is one example. The intro rate applies only to the first $50K for the money market account and to the first $100K for the checking account. AmTrustDirect has a similar cap on new Premium e-Money Market Accounts. The best yield only applies to balances up to $150K. Salem Five Direct also has a cap on its savings account promotion. However, its cap is larger than most at $1 million.
Standard Internet Bank Rates
Lower rates for large balances are not quite as common for non-promotional internet accounts, but they have been more common in the last couple of years. The extreme examples are the Mega Money Market Accounts from the Huckabay banks (AmericaNet, Evantage and Redneck Bank). These are no longer available for new customers, but existing customers only receive the highest rate for balances up to $35K. Other internet accounts with balance caps limit the top rate to the first $250K. These include Incredible Bank and Clear Sky Accounts.
Lower Rates on CDARS
CDARS is another example of lower rates for large deposits. CDARS, Certificate of Deposit Account Registry Service, allows one to invest multi-million-dollar deposits into CDs without going over the FDIC limit. The service spreads deposits in multiple banks to ensure deposits at each bank remain under $250K.
You might expect that the rate will be a little lower to pay for the CDARS service. However, if you look at some CDARS rates, you can see how low they are. One example is EverBank which offers both regular CDs and CDARS. For a 1-year term, the current CD rate is 1.00% and the current CDARS rate is 0.36%. Another example is United Central Bank. For a 1-year term, the current CD rate is 1.00%, and the current CDARS rate is 0.31%. These 1-year CDARS rates are a little higher than 1-year Treasury yields which are currently around 0.20%. So that may be enough of an advantage to keep CDARS in business.
Higher Jumbo Rates Still Exist
Many banks still offer higher Jumbo rates for CDs and money market accounts, and sometimes the required balances are very large. For example Melrose Credit Union offers an extra 25 basis points for Jumbo share certificates with deposits of least $1 million. At United Central Bank customers can earn a 1.75% APY (as of 5/10/11) on the Global Money Market account for a minimum balance of $10 million. So there are places that reward those with large balances. Even if the bank doesn't advertise Jumbo rates, you can often negotiate higher CD rates when you offer to bring in a large deposit.