Want to negotiate CD rates? Good luck

A large gold dollar sign on top of a stack of money and a bank statement in the background
  • The vast majority needn't sharpen their negotiating skills.
  • CDs can be hot money -- gone at the first better offer.
  • Stay within the FDIC insurance limits, and your money is protected.

The idea of negotiating with a bank for a better rate on CDs crops up in blogs, message boards, and some of the e-mails we receive here at Bankrate. But how realistic is it to think that you can call or walk into a bank and argue for a better rate?

Can you waive a competitor's ad and expect to get the same rate? If you offer to deposit an amount considerably higher than the minimum should you expect a better rate for a particular term? What if you've been a customer for a long time, or you have multiple accounts with the bank?

It turns out, that even if you're an accomplished negotiator, you may fare better by buying a high-yield CD.

Bankrate called 30 institutions covering a wide swath of the banking industry. The main parameter we used for selecting companies to be polled was deposits. We talked to the 10 largest banks and thrifts by deposits, and the 10 largest credit unions. We then surveyed community-size banks with under $4 billion in deposits.

As a whole, less than 25 percent of the institutions said they would consider negotiating. Some flat out don't negotiate as a policy of their institution. Others say they have in the past but that the current economy doesn't give them much leeway. None of the 10 credit unions surveyed would bargain with a member when it comes to CD rates. Far and away, community banks were the most willing to negotiate.

A couple of the large banks said they might negotiate but only if the customer had hundreds of thousands of dollars on deposit, and even then the increase might be less than a quarter percent.

Consumers should be prepared for conflicting information from customer service representatives. On several occasions we were told rates couldn't be negotiated, but after asking several questions, we were put in touch with other personnel who told us rates could be negotiated under special circumstances.

Bankrate wants to help consumers find the best return for their deposits with our high-yield databases for CDs and money market accounts. But you may find that some banks prefer that potential customers establish longer-term relationships with them.

Domenick Cama, chief operating officer at Investors Savings Bank in Short Hills, N.J., says that generally, his institution does not negotiate rates, but the bank may if it's a request from a good customer who commits to expanding his or her relationship with the bank.

"If a brand-new customer walks in the door with $1 million, would that attract my attention? Yes, but I would not negotiate a rate for that customer. Customers who have been with us for a long time, have a good relationship with us, have checking, direct deposit, their family has direct deposit -- they're good people to have on your side," says Cama.

Robert Ellis, senior vice president of wealth management at Celent, a financial services consulting firm in New York, says it's an understandable attitude. CDs can be hot money -- gone at the first better offer. And, he notes, most banks have profitability metrics that don't give them much wiggle room right now.

"Traditionally, banks made about 75 basis points*, though I suspect that has been cut in half by the current rate environment; there isn't much room to negotiate."

Banks aren't only concerned about customers taking their money out of the bank when rates drop; they're also worried about the damage a high-yield account can do to other accounts.

"High-yield deposit products of all kinds have been somewhat risky to banks, not in the sense that a loan can be risky, but in that they can potentially cannibalize so-called core checking or savings account balances," says Robert Meara, senior analyst at Celent.

"This may be cynical, but banks rely on rate ambivalence among a large part of their deposit base. We did an analysis in 2007 and concluded that banks needed to generate seven times the deposits on their high-yield products as they did with core savings to generate the same profit because the spreads** were so different."

A couple institutions mentioned that they have jumbo CDs for customers who want a better rate. For the most part, jumbos require a deposit of $100,000, although some banks consider $50,000 jumbo level. Jumbo ($100,000) CDs surveyed by Bankrate in early March were paying an average of 10 basis points above their cheaper counterparts for terms of six-months and one-year. Five-year jumbos had an average yield only 2 basis points better than regular five-year CDs.

Remember to stay within the FDIC insurance limits so your money is protected. If you'd like to check the financial health of your bank, visit Bankrate's Safe & Sound ratings.

*A basis point is one one-hundredth of a percentage point. The difference between 8.04 percent and 8.05 percent is one basis point. ** Bank spread is the difference between the interest rate a bank charges a borrower and the interest rate a bank pays a depositor.


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