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CD Investing: Loyalty Rewards and Customer Promotions

The following is a guest post contributed by Charles Rechlin, a long-time reader and friend of the site. His last guest post covered Personal CD Investing: Step-Up and Step-Rate CDs. I would like to thank Charles for sharing more of his valuable experience on personal CD investing.

Notes on Personal CD Investing: Loyalty Rewards and Customer Promotions

by Charles Rechlin

Remember the Ally Bank ad featuring the “ice cream man?”

In it, a little boy asks the ice cream man (who is dressed suspiciously like a banker) whether he can have an ice cream from his truck. The man haughtily replies: “No, it’s just for new people.” A second boy—obviously one of those “new people”—comes along and is offered his choice of chocolate, vanilla or strawberry, much to the chagrin of the first child. An announcer intones: “Even kids know it’s wrong to treat new friends better than old friends.”

Frankly, when it comes to CD rates, I don’t particularly care whether an institution treats new friends and old friends alike—just so long as I’m the right type of friend, entitled to the higher rate.

That said, I do have a certain fondness (which, sadly, may be a nostalgic fondness) for banks and credit unions that bump-up rates for current customers through renewal rate bonuses (also called “loyalty rewards”) and customer-directed CD promotions.

Apart from my obvious personal interest in achieving higher CD yields, I think these customer-friendly practices make sense for the institutions involved. They help attract and maintain long-term depositors--their potentially most stable funding source—in what is otherwise largely an impersonal market. I wish more of them would wake up to this fact. Maybe some will if, following the recent election, interest rates (and inflation) pick up, as many bond market gurus now think.

Loyalty Rewards

Although Ally may not have invented the loyalty reward, it seems to have the best-known (and most consistently applied) practice of bumping-up posted rates for customers who choose to renew their CDs at maturity.

The bonus, first offered in late 2009 or early 2010, was originally 50 basis points. Ally soon reduced the reward to 25 basis points, where it remained (extended from quarter to quarter) for quite a while. Currently, it’s a mere five basis points.

This .05% rate bump-up, pathetic as it seems, is not necessarily something we yield-starved investors should sneer at. It can make a difference in a decision about whether to stay with Ally when a CD matures, or move the CD balance elsewhere. For me, it has, on more than one occasion, transformed a non-competitive Ally posted CD rate into a rate that was competitive (if only barely so).

For example, I had an Ally IRA CD mature last month. At the time, the closest Ally was offering to competitive CD rates were 1.30% APY for its 18-month CD and 1.55% APY for its 3-year CD, in each case tied to a balance of $25,000 or more. To my mind, bumping these rates up to 1.35% and 1.60% APY via the loyalty reward would make them competitive. For this reason, and to avoid the hassles of arranging a trustee-to-trustee transfer of IRA assets, I chose to renew my Ally IRA CD for three years.

In the past, Nationwide Bank has also offered me a .05% bump-up bonus for renewing maturing CDs. This year, I took advantage of the bonus by renewing a four-year jumbo CD, with a rate of 1.65% APY, into a 5-year jumbo CD, with a rate of 2.05% APY. Had I not been offered the rate bump, Nationwide’s then posted 2.00% APY rate for 5-year jumbo CDs would have led me to move my money elsewhere.

Nationwide doesn’t disclose the availability of renewal rewards, and my experience is that CSRs will not serve them up unless you specifically ask. Further, I don’t know whether the bank has internal guidelines, such as a minimum CD balance, for offering the bonus. Anyway, in my view, all of Nationwide’s current CD rates are non-competitive, even with a .05% bump-up.

Other institutions that have offered me renewal bonuses, in the now distant past, include Bank of Internet USA, Rabobank and CIT Bank. I have no recent experience with any of these banks, however, so I don’t know their current practices (although I suspect bonuses are no longer available).

Last month, a branch of a local community bank was willing to offer me a premium rate for a one-year renewal of a maturing 3-year CD. However, I wasn’t interested in a CD of that term and, in any event, the resulting rate would have been less than what I could have obtained at several other institutions. I appreciate, however, the bank’s gesture to retain my funds.

In the last five years, I’ve succeeded only once in “negotiating” an individualized renewal rate. It involved three jumbo 2-year CDs at a relatively small bank maturing around the same time. The bank offered me a substantial premium over its then posted rate for renewing these CDs for five additional years. I promised the bank, however, that I would never disclose its identity or what it offered me—so I won’t.

Customer-Directed Promotions

It seems obvious to me that, if an institution believes that it has done right by its existing depositors, and that those depositors are happy with what they’ve received in return for placing their money at the institution, then they represent a valuable source of additional funding through promotions.

Of course, what I think is obvious, and what depository institutions actually do, are entirely different matters.

Over the last three years, I’ve benefitted from special promotions directed solely at existing customers conducted by two major banks—CIT and First Republic.

During 2014, CIT offered several of these promotions, featuring premiums of up to fifteen basis points over posted rates (depending upon maturity) on various CDs in its deposit products suite. At first, the promotions were advertised in emails sent to customers; eventually, CIT made the offers available through a link on each customer’s online banking page.

Because, at the time, CIT was among the national yield leaders in many CD maturities, I loaded up on these promotions with both IRA and regular CDs.

Unfortunately, the bank seems to have discontinued offering customer-directed promotional CDs (at least to me) after it completed its acquisition of OneWest Bank in 2015. These days, CIT appears nowhere near as anxious as it once was to grow its long-term deposit base. It’s more interested in shrinking interest costs. In fact, it has trimmed posted CD rates to levels that are pretty much non-competitive. It has also offered me (and probably many other customers) the opportunity, prior to December 23, to trade rate for liquidity by moving my funds presently invested in 3- to 5-year CDs into a CIT “high-yield” savings account, without payment of any EWP. I’m not interested.

First Republic—which I’ve always considered a customer-friendly brick-and-mortar bank—has also launched CD “specials” and promotions in recent years.

In both 2013 and 2014, it offered existing depositors (through a postcard mailing) a .25% bump over posted rates for opening new money CDs. Each promotion lasted a month, and permitted the customer to establish multiple CDs. Because First Republic’s posted rates were already competitive without the bonus bump-up, I took full advantage of each promotion, using funds available from CDs maturing elsewhere.

I haven’t received a promotional offer from First Republic since 2014. I’m hoping this only reflects the absence of current funding needs at the bank, not a lack of enthusiasm for the device of customer-directed promotions.

Some Final Thoughts

This piece reads like a lesson in ancient history. Perhaps some readers have had better luck in getting enhanced CD deals than I’ve had in the last couple of years.

With most banks and credit unions fleeing from, rather than seeking, additional long-term deposits, I don’t expect to be overwhelmed by offers of renewal rate bonuses or customer promotions any time soon. But if a significant increase in market interest rates occurs, as some analysts are predicting—and there is a marked improvement in economic conditions, some institutions may begin rethinking the idea of treating “old friends” like me better than they currently do. I’d certainly appreciate that.

  |     |   Comment #1
Thank you for another well-written, informative article.  I look forward to reading more of your articles.
  |     |   Comment #2
I will add another anecdote in support of your observation(s). I recently had a jumbo IRA CD coming up for renewal at USAA. The existing rate wasn't stellar (2.3%), but I would have been happy to roll the CD for another five years at that rate, had it been offered. Problem was, USAA was offering less than half that. Despite being a member of USAA since 1970, when I was commissioned, and with a multitude of insurance, credit card, and CD accounts, USAA never budged. I even gave them fair warning I intended to move the CD (on several occasions). No reaction. I thought perhaps, when USAA actually received the custodian-to-custodian transfer, someone might contact me. Nothing. Silence. So, I finally called them. I was advised that rates were "non-negotiable." Oh, and thank you for your service and long-term membership with USAA.

My next (and, presumably last) jumbo CD with USAA matures next year. I hope to find it a good (new) home.
  |     |   Comment #3
I'm glad I don't have you as a customer to pester me several times. If a store increases prices that I doubt you insist they sell you items at an old price.  To them your offer is like a cashier offering to sell a sale-price item at regular price.  
  |     |   Comment #6
Interesting about USAA.  I know they have had ultra low interest rates for some time.  As I have, have you also experienced a substantial decrease in knowledge from the banking representatives and difficulty in getting things done such as assigning/changing beneficiaries on account?  Also had trouble with them a year ago sending the my required IRA distribution to the wrong bank account and that was after I had already called and confirmed where the distribution was suppose to be transferred. Like you, I am gradually moving away from doing business with the banking side of USAA. 
  |     |   Comment #10
Mind you, I have no agenda to "dump" on USAA. USAA Bank's current President came from Capital One ("what in your wallet") and he has transformed the bank. While a West Point graduate, he has managed to shift away from USAA's traditional base to a broader swath of "military-related" account-holders. Is this a good thing? Time will tell.

It is somewhat ironic that the "insurance" side of USAA is still firmly controlled by the underwriters who first came up with the concept. It's not terribly complicated. A Naval officer, who is a pretty good risk to begin with, is deployed six months a year. By definition, he won't be driving his car while he is deployed. His wife might drive it, but officer's wives are very, very careful drivers. That was the business model, and it made huge sense.

Commissioned officers, to boot, got hooked up with "Subscriber Savings Accounts", a little-known benefit to commissioned officers only.

USAA, to say the least, is a bit of a tangled web these days.
  |     |   Comment #18
To: Anonymous (comment #6).

In response to your question, I've had a few minor "paperwork" problems with USAA Bank, but nothing approaching sending a RMD to the wrong bank. My "belts and suspenders" approach to the USAA Bank bureaucracy these days is to (a) FAX it to the Bank (I have the luxury of an in-home FAX machine); (b) confirm your sending of the FAX by logging onto your account and sending a message there; finally, (c) good old-fashioned snail mail, certified mail, return-receipt-requested. Then, I call a week later to make sure my account reflects what I have submitted.

I was told by a friendly CSR at USAA some years back that the incoming FAX machine is in one location, the e-mail monitoring in another, and the mail goes to a third. Each location is supposed to log and scan your submittals to your account, but submitting to each improves the odds. Or so I was told.  
  |     |   Comment #19
Bozo, thanks for the info.  I too believe in the fax method.  To add to your method, I also include in the fax documentation a request to wire the funds which gets the funds in the other account as quick as possible.  The amount of the wire fee is usually justified since you can get the amount reinvested and earning interest again more quickly.  

Why  do you do both a fax and also mail a certified/return-receipt copy?  A fax and then request confirmation by online account messaging that the fax has been received has always worked pretty well for me.
  |     |   Comment #9
I am a loyal USAA customer, but ONLY for insurance products.  MOST all of their banking products are a bit less than competitive.
  |     |   Comment #14
Anon456, I would agree, and it's puzzling. With an expanded membership base (see my post above), I would have expected USAA's loan demand to increase and their "deposit-side" banking products to be at least as competitive as your garden-variety easy-to-join credit union. Perhaps, one of these months, we'll see an article in our USAA Magazine entitled "Why USAA Has Such Low CD Rates". Answer: the cost of all the ads on TV.

Well, we vote with our feet (or, more precisely, our custodian-to-custodian IRA CD transfers).

While I might, indeed, be a "member for life", that does not equate with depositing my IRA CDs with USAA "for life".  
  |     |   Comment #15
As I noted in comment #6, it's not just the low rates but the banking service also.  To add to the list,  I was suppose to get a fedex on a signature card on 11/14/16.  As of 11/21/16, not received yet.  So not sure what is going on with them.  So good luck when you go to have your IRA transferred.  Watch out and be sure they do not characterize the move as an IRA rollover.  
  |     |   Comment #11
If you can join Navy Credit Union you should do so when the rates go up. I still have existing IRA's paying 3.34% that will not expire until 2018. The wonderful thing about their IRA CD's is that the first of the year you can add to your existing IRA CD's even with conversions. Since the recession when the interest rates crashed I have added my matured IRA CD's to those CD's.  I take my RMD's near the end of Dec and have the amount that I can convert without going over the amount for high income retirees and put the conversion money into a Roth IRA savings account with Navy and then a week or so later when I can add the money to my existing Roth IRA CD's I do so. I am over my insurance limit but actually do not worry to much about it. We started doing this when the laws IRS laws changed to allow this. 
This benefit is almost as good as the benefit that Pentagon Federal used to offer until 9/01/2007.
Thanks to Ken we were able to join a credit union before a buy out by Navy and then he told of this tremendous benefit. 
  |     |   Comment #12
Even though it is tempting, the add on has stopped at Navy for me due to reaching the insured limit.  I too could get a little over 3% with the add on feature on the IRA, but I have not convinced myself the the added rate over what I can get somewhere else is worth this risk.  Hard to believe that Navy would have any problems, but you never know what might happen these days.  
  |     |   Comment #4
Yes, Charles is correct. A .05% rate bump-up is pathetic.

When a competing institution offers a particular limited time rate promo (such as many that Ken has posted here), rest assured "loyalty" isn't going to mean much. They are usually run @ 10 bps or HIGHER than the highest rate out there. As cited, 50, 25 or hell..even 15 bps would have kept me on.
But 5 bps?......thanks, but umm, no thanks.
  |     |   Comment #5
Also up for discussion, tangentially, are the savings accounts we choose to use as "hubs" to park our matured CDs while waiting for better rates (as well as to serve our liquid needs). SalemFive is a poster child for the "ice cream truck" allegory. I am currently in the process of dismantling my relationship with them, piece by piece (e.g., bill pays, designating alternate banks as default institutions to sweep dividends, etc.). Their promotional 1.10% APY -- for new kids on the block -- has consistently dwindled for the loyal ones, down over the past years to 1.00%, 0.9% and most recently 0.8% (per their latest statement; maliciously, they don't let you know your monthly interest rate until only after they've paid it!). Time to -- carefully -- fold up the tents, once again, and move on . . .
  |     |   Comment #7
I have a few bank accounts that are over 30 years old.  They are with the "banks too big to fail" group.  They pay a very small amount of interest.  I keep them open because they have local branch offices that can be easily contacted if I needed something right away.  Most were banks that got bought out by another bank, so I decided to keep them open.  I do not believe in completely relying on internet only banks. They can vanish or shut off access at any time.  BTW, I have stopped keeping most of my liquid assets in CDs.  With the huge drop in rates for over the past 8 years, I would rather be ready to pounce on the next opportunity (such as in 2009) rather than keeping track of different maturities.  If I was going to go long term, I should have did it before 2003 (and especially during the 1980s).
  |     |   Comment #8
I just keep a checking account with Chase. I use this to pay bills, check deposits and cash access and for ACH deposits and withdrawals sometimes. I perform most transactions at the ATMs including deposits. I do use Chase bill pay for recurring payments that are the same amount. I need some bank serviced like signature guarantees once in a while for stock and to setup a Treasury direct account so I could convert the paper so I no longer have to store them. All my savings are with Internet banks. I don't see why you think they can "vanish" or "shut off access". All banks have to obey the same rules and regulations and most all are FDIC insured.
  |     |   Comment #13
I had one internet bank just close shop and I got a mailed check from the FDIC after a buyer could not be found for the closed institution.  I never got any mail concerning the online bank being shut down.  I did not use any of the more popular services for online banks like direct deposit and ACH withdrawals, bill payment, ATM withdrawal, etc., so the closure did not impact me.  If I did, it would have been rather annoying to try to rearrange the transactions and money scheduling.

I have experienced online bank websites not being up 24/7, so you are shut off for all intents and purposes when that occurs.  What has FDIC insurance have to do with my comments?  I did not say that I lost money by putting money with online banks.  As for same rules and regulations, they all have to abide by what is specified for banking institutions.  But when a hacker intervenes, a system upgrade goes belly up, or you suddenly have to close without prior notice, you will be making a fuss at an imaginary institution on a telephone call.
  |     |   Comment #16
I have never had a site go down for a day for any bank. What bank did the FDIC takeover that you had money in? A hacker can get into any institution large and small depending how robust their systems are. The problem with IT is that there are no standards. I'm in IT and have seen systems compromised in large corporations. Even your brick and mortar account can be hacked. I was on a 30 day federal grand jury in NYC a few years back. Many of the cases were for wire fraud because tellers stole or for time periods took peoples money. That deposit slip that the bank doesn't shred can be found in the trash. I have no fear using Internet banks or CU's. If you are not comfortable that's your choice. My mother will not use an ATM.
  |     |   Comment #17
It was back in 2012 when I got a mailed check for a closed account - It was Nova Bank (had a different name when I first opened the account).


I read a local paper article about the history of how the Internet was created.  It was never intended to be secure.  Its original goal was to allow uninterrupted communications between systems in the event of a major disruption (such as a nuclear war).  So placing your trust on something that was not originally meant to be secure seems rather foolhardy to me.  But, dumpster diving is still the more common method to commit fraud.  I've worked in IT since the time of the Apple II computer.
  |     |   Comment #20
I am not a fan of "loyalty" rewards. I feel like all depositors should receive the same offer. Its annoying (to say the least) when after being a member for a couple of years to discover that there are also loyalty rewards that were not previously mentioned (e.g. disclosed). In my experience, these "loyalty" rewards seem to come and go. Given that, it pays to ask about them because they are unadvertised. So I generally end up asking when opening a CD: 1) how to avoid any fees and 2) if there are any loyalty or bonus rewards for extra services like a checking account.

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