Lower rates mean lower deposit rates, right? Probably not

[Gollum]

"As loan rates come down, more borrowers will come back into the market for credit. As the demand for credit builds, banking’s loan-to-deposit ratio will also rise, and their deposit rates commonly follow suit."

https://komonews.com/money/deposits/lower-rates-mean-lower-deposit-rates-probably-not (cookies required) 11-18-2024

[IsambardPrince]

There's still outfits out there offering nearly 5%.

Some of them are like Laurel Road or UBS Direct where people tend to complain that their entire account got frozen for reasons unknown and it's difficult to even get a hold of anyone when it happens.

Ally Bank is under intense pressure to lower rates as fast as they can because their main "asset" is a bunch of car loans that are going bad and the last thing they need on top of it is expensive deposits. Some deposit options are still 4.3-4.5% and haven't dropped, like PayPal Savings.

I think the general trend is definitely down but it still depends largely on how much the bank is trying to attract deposits and how much pressure there is to lower them so they aren't being squeezed by toxic assets on one side and deposits on the other.

However, you can still throw a rock and hit dozens of online banks offering at least 4% on deposits, and none of them are like the megabanks where you get a tenth of a freaking point of interest and customer service that's up there with Spirit Airlines. So I think it's worth keeping perspective.

[Windchill92]

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@IsambardPrince wrote:

There's still outfits out there offering nearly 5%.

Some of them are like Laurel Road or UBS Direct where people tend to complain that their entire account got frozen for reasons unknown and it's difficult to even get a hold of anyone when it happens.

Ally Bank is under intense pressure to lower rates as fast as they can because their main "asset" is a bunch of car loans that are going bad and the last thing they need on top of it is expensive deposits. Some deposit options are still 4.3-4.5% and haven't dropped, like PayPal Savings.

I think the general trend is definitely down but it still depends largely on how much the bank is trying to attract deposits and how much pressure there is to lower them so they aren't being squeezed by toxic assets on one side and deposits on the other.

However, you can still throw a rock and hit dozens of online banks offering at least 4% on deposits, and none of them are like the megabanks where you get a tenth of a freaking point of interest and customer service that's up there with Spirit Airlines. So I think it's worth keeping perspective.

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I think this is a pretty good assessment. ik Amex isn't wasting time dropping their rate (just got APY < 4.00%) and Citi follows suit not long after.

My issue with firing up deposit accounts at FIs with APYs still in excess of 4.5% is that there's a bit of uncertainty/distrust involved which could lead to what I bolded in your quote. Plus, I'd eventually like to use some of their other banking products, and if their CCs/rates/CS sucks, it's a no-go from me.

[IsambardPrince]

Yesterday, AmEx got me and lowered their rate to 3.85. PayPal didn't send a notice and lowered from 4.3 to 4.10.

I can still get no penalty 11 month CDs at 4, so I've been shuffling more money into those to at least stabilize at 4 for 11 months. 

I'll roll them over every week until there's a rate cut on that tier.

[RootDet]

I look at the post at Doc often - https://www.doctorofcredit.com/high-interest-savings-to-get/

It took me  along tome to get Ally, they were always chex sensitive for me. So i keep them regardless. 

I did manage to move some of my assets over to EverBank (formally TIAA). 

I stopped chasing the bank APY, because it is too much work to keep moving. When I do go looking, I have criteria. 1) I only targeted places that are true banks (or brands/subsidiaries), not fintechs. So places like One Finance, Upgrade, Wise, Betterment, Wealthfront,  etc. 2) It must have a checking/money market option. 3) it should support zelle (not a deal breaker). Places that are savings/cds only are a pass.

[ptatohed]

My Primis checking just went from 5.07% to 4.85% yesterday.  

[Realist]

If FED rates come down, then yes you will likely see deposit rates come down also.  There's a number of CD products that aren't far off of 5%, and some high yields that offer close to it, or even above 5% with hoops.  But yes, the decline is approaching again, before I believe they will leap even higher later.  The time of the CD is approaching.

That said, there are opportunites to get creative.  Just run any financial calculator to determine your earnings for X amount of dollars, placed into a CD, and what amount it yields over time.

Then also, or instead, go take advantage of welcome bank offers where it makes sense.  Chase offers $900 for a mere investment of $15,000, and a single direct deposit.  P1 and P2, can earn $1800 in only four or so months with Chase, as opposed to a CD in which would average less than $500 in the same amount of time, or $1400 over an entire year.  The advantage in this case is the Chase welcome offer.    There are multiple instituations that offer attractive options.

The only thing you have to do is get creative.  Not all bank welcome offers make sense, but some-many absolutely do.  Use a calculator if you need to.  Upfront deposits, run the calculator.  Direct deposits, so long as you can met them, almost always make sense.  It's literally free money simply by reallocating funds to another source.  So long as you can pay debts, it works.

[AndySoCal]

Yes deposit rates have come down in response to the Federal Reserve cut in rates. If you look at the whole picture you have some options.

1) Through some brokerages you can buy brokered CD's.  I have one I bought through Vanguard that was a First Foundation Bank CD  offering. The CD is insured because the money is in a bank. The interest is paid by First Foundation Bank. There are two types of brokered CD 's callable and non callable. A callable CD can be called by the bank your CD deposit amount plus any accrued interest will be paid to you. Now you have to decide how to invest the money again.

2) Look at US Treasury bonds starting at 4.20  to 4.5 percent yield. This requires a little bit of research.  The interest rate at the time the bond was issued may be 3.75% but the yield will be over 4 percent. The bond is selling at a discount to its par value. So you will be paid at the 3.75 percent rate until the bond matures. At maturity you will get the last interest payment plus the par value of the bond will be paid to you. This means if you bought the bond for $980,00 the par value is 
$1000. So you would  receive and additional $20.00 per bond. The price you paid in a sense is irrelevant in a sense. If you pay more than par you will not get the amount over par you paid back.

3)  I also will buy short term 3 to 5 year corporate investment grade bonds and government agency bonds. Again do your research.  I started with companies I know and do business with.