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Don’t let local slump zap CD returns

By Claes Bell ·
Monday, June 13, 2011
Posted: 4 pm ET

If you're still only shopping for CDs locally, you may be hurting yourself.

An analysis of Bankrate data by Alan Klein of American Banker last week shows that regional differences in CD rates can be significant:

The two markets bookend a spectrum of prices for one-year certificates of deposit available across 25 large metropolitan areas, with weekly quotes ranging from an average of 0.76 percent to an average of 0.30 percent from July of last year to May this year.

It also appears that regional disparities can persist for a long time -- markets with relatively higher rates over about the last year also generally had relatively higher rates in the year from July 2009 to June 2010. (All markets showed declines between the two periods as overall interest rates fell.)

Despite the prominence of national online platforms and the ability of consumers to rate shop using websites, Greg McBride, senior financial analyst at, said varying levels of competition and local demand for loans, which drives funding needs, still create significant differentials.

That average one-year CD rates can vary nearly a half a percentage point from one metro area to another underlines for me the need for CD investors to shop around nationally. There's just no reason to take a lower rate on an FDIC-insured CD just because the bank you're getting it from happens to be close to your house.

That's especially true if you live in an economically depressed area where loan demand is really low. As the American Banker article points out, banks can only offer good CD rates if they can turn around and lend CD investors' money out to businesses and individuals at decent rates. If no one's borrowing from local banks to do things like expand businesses or buy houses, then banks in that area won't be likely to offer good CD rates.

So if you're living in Detroit, Florida or another state that's been hard-hit by the Great Recession, don't let your state's economic problems affect you more than they already have. Instead, shop around nationally for the best rates.

What do you think? Are you still buying CDs from the bank down the street? If so, why?

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June 15, 2011 at 12:11 pm

Unless you're talking big $$$$$, the rate isn't worth the time or hassle. A simple local credit union savings account pays almost as much.