CD rates Blog

Finance Blogs » CD rates » CDs pay at minority-owned banks

CDs pay at minority-owned banks

By Claes Bell, CFA · Bankrate.com
Thursday, September 12, 2013
Posted: 4 pm ET

Is getting top dollar for your deposits important to you? You might want to consider banking at a minority-owned bank.

According to a study released this year by researchers at the University of Wisconsin-Whitewater, minority-owned banks have, on average, offered substantially higher rates on certificates of deposit than the banking industry as a whole.

Between 2002 and 2011, black-owned banks offered an average rate of 2.09 percent on one-year CDs, compared to the national average of 1.99 percent. Asian-owned banks offered one-year CDs that averaged 2.36 percent, and banks owned by other minority groups such as Native Americans offered rates that averaged 2.08 percent over that period.

Why the deposit premium? A federal law that's been around since the '70s, known as the Minority Bank Deposit Program, encourages the Treasury to place deposits at minority-owned banks.

That law may lower their overall cost of capital, says one of the study's authors, Richard McGregory, director of the McNair Scholars Program and a lecturer in the Economics Department of the University of Wisconsin-Whitewater.

"In our opinion, the economic rents come from the Treasury Department making a concerted effort to place deposits with the banks," McGregory says.

Those economic rents, generated because those banks don't have to pay as much to fund their lending operations as they normally would, are then passed on to bank customers in the form of higher rates on deposits.

For consumers hunting for higher CD rates in these low-rate times, that means they may want to consider checking out a minority-owned bank in their area. The Treasury maintains a list of institutions that participate in the program, so that may be a good place to start.

Follow me on Twitter: @ClaesBell.

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.