Now it's savers who are feeling the credit crunch. Yields on savings accounts, certificates of deposit and money-market accounts are dropping...
Now it’s savers who are feeling the credit crunch.
Yields on savings accounts, certificates of deposit and money-market accounts are dropping en masse since the Federal Reserve’s latest round of rate cuts.
That’s a shift from the fall, when banks were generally slower to follow the Fed’s lead and cut rates as they continued to compete for customer deposits. That gave savers more time to enjoy yields of 4 to 5 percent or more.
But now, facing their own higher credit costs and weakening loan demand, banks are quicker to pass along the Fed’s more-aggressive rate cuts.
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In recent weeks, banks that had previously offered high yields on deposit accounts, including Emigrant Savings Bank’s EmigrantDirect.com, ING Groep’s ING Direct and Washington Mutual, have slashed their rates.
At the same time, average yields on CDs dropped below 3 percent in early February from close to 4 percent in the fall, and are currently between 1.95 and 2.75 percent, according to Bankrate.com.
For now, consumers can still find deals by foraging in some lesser-known corners. One option: limited-offer promotional-rate CDs.
In recent weeks, for example, Countrywide Financial’s Countrywide Bank began offering a 12-month promotional CD yielding 4.2 percent, even as it cut yields across the rest of its CDs to 3 or 3.25 percent.
Savers can also find attractive yields at smaller banks. Century Bank Direct, the online unit of Century Bank of Kentucky, is offering an online account that pays 4.01 percent.
“We’re new to the online banking world and we’re just basically trying to get a little attention,” says Tamara Smith, the bank’s marketing manager.
Credit unions and online banks also typically offer higher yields than big brick-and-mortar banks.
And some firms with big mortgage-lending arms, such as Countrywide and IndyMac Bancorp, that have had trouble raising money in the capital markets, have been offering surprisingly high yields on some CDs through their banking units.