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Large Banks vs. Small Banks – Who Offers the Better Rates?

A year and a half ago, we focused our data microscope on a question that comes up from time to time: do smaller or larger financial institutions offer better deposit rates? Or maybe it’s the mid-sized banks and credit unions? Our test hypothesis was what most savvy savers will anecdotally tell you from their rate shopping, that the biggest players typically pay the least. And indeed our 2015 analysis bore that out. But does that equate to the smallest institutions paying the most?

Since we last sharpened our pencils on this, two Fed rate hikes have injected a little upward movement across the deposit market, so we’ve been curious to revisit the question with fresh 2017 data. Join us to see what we found in our dive.

Setting the table

We started by choosing four deposit products to compare: personal savings and money market accounts, personal checking accounts, 1-year CDs, and 5-year CDs, all with a deposit amount of $1,000. Then, in defining some buckets for institution size, we decided to take it to two levels. First we applied a broad-brush approach of grouping asset levels into small, medium, and large tiers. Then we got more granular, breaking institutions into 16 finer-toothed asset categories.

defining size

As for which institutions to target, all banks and credit unions with a brick-and-mortar presence were included. We opted to leave out internet-only banks to give us the most apples-to-apples comparison among similar institution types, since their typically higher rates tend to skew analyses.

What we learned about small vs. medium vs. large

Running the numbers did indeed produce some interesting results on correlation between institution size and deposit rates, among all four of the products. First, you can see the differences for checking and savings accounts (aka, liquid accounts) in the chart below.

best liquid rates

Small and medium institutions essentially competed neck-and-neck in these products. But the largest players? For both checking and savings accounts, their rates were just half of what their smaller counterparts were offering.

For 1-year and 5-year CDs, the story is similar. Big banks and credit unions pay far less than smaller players, although not as bad as half the rate. But here, medium institutions outshine the small ones, leading the returns for both certificate maturities.

best cd rates

As one last test of how these size tiers compare across the full spectrum, instead of individually for the four products, I calculated a cumulative average rate. In essence, I imagined a basket holding one savings account, one checking account, one 1-year CD, and one 5-year CD, and assumed the average APY for each. I summed the four average rates into a single cumulative APY to see how much the three bank tiers vary when considering all four product yields as a bundle.

best overall

We see that, at this three-category level, medium-sized institutions win “all-around” honors for best returns across the menu of products. Also noteworthy is that the large institutions have a combined rate that is 35-40 percent lower than what the smaller players offer.

Drilling deeper: 16 size buckets

As we mentioned, we also took a fine-tooth comb to the institution sizes, so we could get a more detailed look at how rates vary across more precise asset groupings. Let’s start with the savings and checking accounts.

You’ll remember that the average APYs for small versus medium-sized institutions was very close for both checking and savings accounts: either the same or within an insignificant basis point. But when we break it down into smaller categories, this line graph shows that those rates are truly averages, meaning the rates at different sizes within the three large groupings are up and down quite a bit.

best liquid rates of 16 categories

For savings accounts, medium-sized institutions with $5-10 billion in assets as a group have the highest average rate, but it then plummets for medium players in the next tier, $10-25 billion in assets. We also see that some of the large institutions pay more than this highest tier of the medium group.

Among checking account rates, averages bob up and down as you move from the smallest institutions to the mid-range, but the general trend is downward as size increases, with the highest rate averages indeed coming from the three smallest-size institutions at the far left.

For both types of liquid accounts, by the time you reach institutions with assets of $100 billion or more at the far right of the graph, rates have tanked to near zero.

So how do CD rates fare in this granular breakdown? The trends are a little more uniform here, as we compare 1- and 5-year CD returns. From the smallest tier at the left, both sets of average rates climb fairly steadily until they reach a peak with the banks and credit unions having $5-10 billion in assets. Note that this size tier is the same one in which savings rates peaked.

best cd rates of 16 categories

After the $5-10 billion institutions, rates plunge downward at every larger tier for 5-year CDs, with all the highest tiers having a worse average rate than seen among every other size institution.

For 1-year CDs, the storyline varies a smidge. A downward trend is also observed after hitting the $5-10 billion asset level, but there is an anomaly to the decline at the large-size $25-50 billion tier, before then dropping off again.

The Outliers

After compiling the data on average APYs across all institutions by size, we also wanted to explore the kinds of yields we know our smart rate-chasing readers find most worthy – namely, the top-drawer products. We analyzed these attractive outliers by searching DepositAccounts’ rate search tables for the 20 best individual yields for each product type. We then classified each of the 20 institutions according to the three broad-brush size categories.

The results from these most competitive rates paint a slightly different picture than what we found from averages across all banks and credit unions. What is still true is that the largest banks are the least likely to offer a competitive rate. In fact, out of 80 top rates (the best 20 from four products), only one comes from a large institution.

But this time, instead of the middle-range players standing out, small institutions dominated the top ranks of the nation’s best rates. Across the four products, 65 to 80 percent of the top APYs were offered by institutions with assets below $1 billion.

most top 20 rates

(Author’s note: Many of these top-rate products are not available to savers nationwide. Some bank products may only be available in certain states, while credit union rates are typically only available to savers who qualify for membership. To see what’s available in your state, visit our rate search tables.)

What to take away

Our analysis here is primarily intended as a test and documentation of how deposit rates correlate with the size of the institution offering them, and helps provide a fresh satisfaction to our perpetual curiosity about the topic here at DepositAccounts. But there are some practical takeaways as well.

First, while big banks may serve a useful purpose in the mix of financial institutions you use (e.g., local branch accessibility, ATM network, promotional bonuses), they are virtually never a good choice for stashing cash on which you’d like to earn a competitive return.

Second, don’t overlook the smaller players when looking for a place to earn top returns. Sure, maybe you’ve never heard of a bank in your state because it doesn’t have branches in your community. But by checking that the institution is either FDIC or NCUA insured, you can feel comfortable capitalizing on chart-topping rates from smaller banks and credit unions.

Finally, keep in mind that rates can change any time an institution opts to do so (barring rates you’ve locked in with a CD agreement or promotional guarantee). More rate hikes by the Fed could theoretically alter the landscape for players who become newly motivated to attract consumer deposits. On the flip side, as banks succeed, they grow and could find themselves in higher-sized tiers over time. As their deposit base increases, their incentive to offer competitive rates may diminish.

In any case, our rate-savvy readers know that shopping for the best returns is an ongoing exercise, since the rate environment can change, smaller banks can be acquired by larger banks, and special promotions can be announced at any time. But based on this data, our money is on your finding the vast majority of plum brick-and-mortar deals from the small- to medium-range players in the game.

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  |     |   Comment #14
It's a well known fact that smaller banks have better saving rates, however, they can put themselves out of business if not being careful when millions of people flock to get the better rates and that is a big disadvantage for the small banks/CUs.
Furthermore, you can not compare small with big banks, the smaller banks are not allowed to have brokerage accounts, issue bonds at will, have mutual funds, have international transfers or buying/issuing derivatives and so on.
A big bank can make millions of profit just by issuing (financing) IPOs for small or big companies or just being a guarantor for insurance companies. As you can see the playing field is tilted to favor a big bank.
A small bank has limited opportunities to make money except to issue new mortgages or buy treasuries.
  |     |   Comment #15
The small banks can limit deposits if they offer a new rate. I believe it was XCEL and when they had a good rate they told me once they hot their target of funds they would immediately stop the offer. Near me the last small bank was taken over by a large bank. So except for checking my savings and CDs are done at internet institutions that are not local. Once I see an offer I try to take advantage as quickly as I can.
  |     |   Comment #16
Yah, I saw a post here on a Thursday earlier this year about a CD rate. I opened the CD @ at a small bank (their main branch was a converted house)....Anyway i deposited 250k on a Saturday, and by Monday the promotional rate was gone. You gotta be quick with these small banks.
  |     |   Comment #17
Small banks or credit unions can afford to be more nimble, offer more competitive rates, and match rates offered elsewhere. That said, their "promotions" tend to be over-subscribed in a short period of time. A small bank or credit union might wish to increase its capital by offering a short-term "hot-deal". When the amount of capital is achieved, the deal goes "poof". Folks who jump onboard immediately (before the deal goes poof) are largely unaffected. Folks seeking a custodian-to-custodian IRA CD transfer might be unhappy.
  |     |   Comment #18
They also don't pay taxes so they should be offering better rates on savings and lending.
deplorable 1
  |     |   Comment #19
My experience is the bigger the bank the less competitive they are and the lower their interest rates. Just look at the big banks with .01% on savings while charging 38% on credit cards. Same thing with their fee structures the larger banks have higher fees as well. Lets look at the worst bank of the bunch BoA(Bank of America) where I have my checking account since they bought out my old bank. Their savings rate is a paltry .01% and these jerks actually have the nerve to charge $3 for a ACH transfer! You need DD just to keep the checking account fee free. I can't believe I have to use 3rd party banks to transfer money out of my checking account to avoid a fee when I have direct deposit.
  |     |   Comment #20
In my local BofA branch there are:
Only 2 tellers, 2 new accounts openers, 4 supervisors, 2 managers and a corporate communicator.
Now multiply that with 1000s of branches to see the magnitude of not productive persons, it is mind boggling.
Than you have the 1000s of corporate leeches and their personal secretaries and receptionists.
As you can see, 90% of the profit made is gone on labor that do not work or produce income, then you have branch expenses and taxes.
Nothing left to pay interest on our money deposited.

The financial institution, product, and APY (Annual Percentage Yield) data displayed on this website is gathered from various sources and may not reflect all of the offers available in your region. Although we strive to provide the most accurate data possible, we cannot guarantee its accuracy. The content displayed is for general information purposes only; always verify account details and availability with the financial institution before opening an account. Contact [email protected] to report inaccurate info or to request offers be included in this website. We are not affiliated with the financial institutions included in this website.