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CD incentives go negative

By Claes Bell, CFA · Bankrate.com
Monday, July 25, 2011
Posted: 10 am ET

If you've noticed a lack of attractive special offers on CD rates, you're not imagining things. Market Rates Insight has a report out this month showing the APY premium -- the usually modest rate bonus banks offer new customers to keep new deposits rolling in -- has fallen so low in some cases it's actually negative. From the report:

For the first time in at least 10 years, the APY premium on the 12-month CD is negative. This means that the national average APY of 12-month specials is lower than the regular APY offered on the basic CD. In June of 2011, the APY premium of the 12-month CD was negative 0.02.

We've been talking about low CD rates for months now, but this report marks a troubling low. When banks aren't even willing to throw new account holders a bone in the form of a few extra basis points, you know banks' demand for deposits is almost totally nonexistent.

A number of factors are conspiring to depress banks' desire to bring in new account holders, including sluggish loan growth, historically low Fed rates and a massive flight to safety among investors. Until the economy improves, it's hard to see a way forward to decent CD rates anytime soon.

That doesn't necessarily mean it's impossible to find a good promotional rate on a CD; it just means it's gotten a lot harder.

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