bank rates

Promo CD Rates Aren’t Thrilling Savers

$20 bill folded in halfSavers continue to withdraw CD deposits from banks and thrifts, despite a momentary pause we reported last month.

Interest rates just aren’t good enough for most folks to lock in their money for any extended period of time.

Recent research suggests even when banks try to gin up interest with higher yields, they fail to attract many buyers.

Between June 2013 and March 2014, the average yield on CD specials of longer than three years increased by 75.7%, while balances fell by 5.9%, according to Market Rates Insight, a California-based pricing consultant to financial institutions.

Shorter-term specials didn’t fare any better.

Promotional rates on 1- to 3-year CDs increased 15.7%, while balances fell 3.5%. And special rates on CDs with terms of 1 year or less increased by 13.3%, while balances dropped 2.3%, Market Rates Insight found.

There was about a 10% decline overall in CD deposits during the time this study measured, according to Federal Reserve data. So the specials may have slowed the leak, but it certainly didn’t stop it.

“The obvious conclusion, then, is that promotional rates are not very effective in attracting new money or in shifting balances to long-term accounts,” Dan Geller, Market Rates Insight executive vice president, wrote in a recent article for BAI Banking Strategies. “It is possible that gains might be achieved for individual institutions and/or in specific markets, but overall, nationally, the specials aren’t working in the current rate environment.”

That’s because even the special rates aren’t all that special, historically speaking.

We’ve published several recent examples of institutions offering special rates:

  • Service 1st Federal Credit Union in Pennsylvania has a 24-month CD special that pays 1.50% APY, well above its 0.85% APY standard rate.
  • Bethpage Federal Credit Union on Long Island has a 22-month CD special that pays 1.50% APY, compared with the 1.25% APY the credit union pays on its standard 24-month CD.

These two deals pay well above the average 2-year CD rate of 0.36% APY. They also easily beat the best nationally available offer on our CD Rates Leaderboard, a deal that pays 1.26% APY.

These offers look great compared with what’s out there today. But that doesn’t make them actually good.

Savers haven’t abandoned the concept of certificates of deposit. Pentagon Federal Credit Union proved that late last year by attracting more than a billion dollars in new deposits with its long-term CD offer.

But you have to wow us with something that is actually, well, special.

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