Starting January 1, 2010, under capitalized banks have to set rates at or below the Weekly rates that the FDIC publishes. Search for "fdic weekly national rates" in your favorite browser for the current certificate rates.
Most frustrating is that even healthy banks are deciding to follow the rate cap. I guess they decided that if the FDIC thinks those are "good" levels they should too. Numerous banks are even setting their rates lower. There has even been rumors of pressure from bank examiners saying, healthy or not, they should not be paying rates above the cap.
I didn't really see this as the outcome the law would have, frankly. I hoped it would make it harder for the unhealthy banks to raise deposits and thus decrease potential losses to the FDIC. I see just the opposite occurring. With the many healthy banks posting lower CD rates, the unhealthy banks are still quite able to easily attract deposits.
Never the less, it is extremely disheartening to see the government stepping in so vigorously to basically regulate the certificate rates that banks offer. Another interesting note, although banks have not strayed too far from the government rates, many are still out there with high yield savings and checking account specials.
Another fascinating development: banks work around the caps with creative penalties. As an example, we have seen a few banks with 2-Year rates with a zero penalty after 1-year. That effectively allows them to use the higher 2-year rate for a 1-year CD. This just goes to show you that ingenuity can "trump" restrictions placed by the government. Also goes to show you that governmental restrictions are rarely thought out well enough and often have the opposite effect of what was hoped or intended.
Two good notes. Credit Unions are not regulated by the FDIC and thus have no rate cap. There are still a few out there posting 2% or above for 1-year CDs. Some banks have low early withdrawal penalties such as 90-Days or 180-Days for 5-year CDs. Some of the rates are well above 3.00% and if you calculate the 2-year and 3-year equivalents, well above other banks offering those terms. By the way, we can do the calculations if you ask us nicely.
In summary, the government can try to regulate rates, but banks will be as "creative" as they always are to work their way around them.
Looking for Certificate of Deposit Rates, give us a visit.
Chris Duncan is a FINRA Registered Representative. He specializes in helping clients find the best and highest CD rates nationwide. His clients include individuals, financial institutions, corporations, and public agencies. Visit us at http://www.jumbocdinvestments.com.
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