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  4. Why Do CDS Sometimes Have Less APY Than Savings Accounts?

Why Do CDS Sometimes Have Less APY Than Savings Accounts?

charged
  |     |   12 posts since 2016

Ally Bank: 1% savings interest

3 month cd: 0.3%

6 month: 0.6%

American Express Online Bank: 

Savings: 0.9% interest

6 month cd 0.4%

9 month: 0.55%

So is there an incentive why someone would choose a CD in either of these instances? Why does the same bank offer savings accounts which people can withdraw from at anytime with higher interest yield than a cd where the money is locked down unless the customer wants to pay a penalty?

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Bozo
  |     |   1,375 posts since 2011
Interest yields on demand deposits/savings accounts are often "loss leaders". Savings accounts drive folks into banks and credit unions where they may be sold more profitable products. Savers of money into savings accounts, over time, might become investors (happens all the time, by the way). A certain brand loyalty sets in. You start out with Bank "X", because of the interest rate on their savings (a whopping 1%). You like the tellers, you like the free paper statements, you like the free coffee. You just like Bank "X". As you get older, and richer, you visit Bank "X" for annuities, stock investments, and CDs. Bank "X" is thinking very long term. As Bank "X" should.
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charged
  |     |   12 posts since 2016
That explains it, thank you!
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2


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