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The mystery of promo CD rates

By Allison Ross ·
Thursday, August 7, 2014
Posted: 1 am ET

Dan Geller spends a lot of time looking at rates on certificates of deposit.

As the executive vice president of Market Rates Insight, he has to.

And as he's been perusing this data, he's noticed a strange trend with CD rates in the past few years. The average promotional rates on a 1-year CD are actually lower than the average rate on 1-year CDs in general.

That seemed somewhat counterintuitive. CDs with longer-term yields are more naturally seeing the opposite thing. For instance, MRI lists this week's average yield on a five-year CD at 0.78 percent, while the average promotional rate is at 1.96 percent.

© snapgalleria/

In contrast, MRI is listing this week's average one-year CD rate at 0.21 percent, and the average promotional rate at only 0.13 percent.

"Banks (are not being) very aggressive with specials on 12-months CDs," Geller says.

Of course, recent research has found that promotional rates aren't doing much to attract customers lately.

Still, it's curious why one-year CD promo rates are, on average, not very high.

1-year maturities too easy to remember?

Geller has one hypothesis: Banks would prefer consumers deposit their money into accounts of different terms.

"The whole principle of offering a special is simply to attract money with the hope that consumers will leave it there and have automatic rollover," he says.

In other words, a promotional rate can get consumers' money in the door, with the hope that they may forget about it so that the CD matures and rolls over for another term at the prevailing -- probably lower -- rate, Geller says.

But Geller says with one-year CDs, consumers are less likely to forget about their CDs maturing, so that rollover is less likely to happen. Instead, the consumer is more likely to remove that matured CD and look instead for another promotional rate.

"We are conditioned to remember annual events -- birthdays, anniversaries, holidays," Geller says. "But for an 18-month CD, who is going to remember that?"

In contrast, other terms may be harder to remember "and there is a greater probability of automatic roll over to the lower regular rate of that CD term," Geller says.

Shop around for better CD rates

Geller says that although the average rate on a one-year CD promo is low, individual banks may have a higher CD rate.

It's important to shop around for the best rates, and Bankrate can help with that with tips on how to find the best CD rates in your area.

And if you do get a CD, take care not to forget about your CD and let it roll over automatically.

Follow me on twitter: @allisonsross.

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