CDs offer competitive rates for savings
by Joy JordanWith interest rates rising, that can spell bad news for homebuyers and other borrowers. But investors are seeing a benefit, in the form of higher rates of return on Certificates of Deposit and other savings and investments.
In June 2005, for example, Bankrate.com listed the national average interest rate for a one-year CD to be 2.73 percent, and the year before that, it was 1.4 percent. Today, the average interest rate on a one-year CD is 5.09 percent.
Cape Business surveyed CD rates as of July 30, 2006, and found a large range – anywhere from 1.98 percent to 5.5 percent on a 6-month CD. (See accompanying chart below.) Of note was the fact that, in general, the lower rates were at local or regional banks, while the national banks offered higher rates. Is this simply a function of the larger banks having more resources, or is a strategic choice on the part of the local banks?
Steve Lowell, executive vice president and CEO of Cape Cod Cooperative Bank, confirmed that it is the latter, at least for his institution.
It’s not that they can’t compete – it’s a choice on their part. “It’s always conscious decision by a bank to match assets and liabilities of depositors and investors,” said Lowell. Some banks may need to be more aggressive or less aggressive, depending on their funding needs and other factors, he added, saying that this is a basic guideline of the banking industry.
Lowell noted that Cape Cod Cooperative strives to focus on their relationships with customers. For example, their “Cape Life” customers are offered CDs at 5.25 percent – and they can pick their term, from 6 months and up.
They want to attract new customers, of course, but for all of their banking needs – business, checking, savings, loans – not just CDs. Their goal is to focus on the entire relationship. “Relationship banking – that’s our niche,” said Lowell, adding that it is a way to compete with national banks, by capitalizing on customer service and rewarding good customers.
In addition, many banks are offering term lengths different from the standard 6- or 12-month CD, noted Mefford Runyon, Cape Cod Five Cents Savings Bank’s director of retail banking. “The CD market has become very complicated – banks sometimes target one or two terms with good rates and ignore the other terms. Using the old categories of six to 12 months for comparison is unreliable.”
For example, Cape Cod Five has promotional rates for seven- and 13-month CDs, at 5.13 percent and 5.25 percent, respectively.
This is a marketing tool that larger banks have started using, in an effort to set themselves apart in the marketplace, and the smaller banks are doing the same to compete.
In that vein, Rufford noted, Cape Cod Five also offers a 3-month CD that allows a withdrawal during the term without the standard penalty, as a way to stand out in the competitive Cape CD market.
“The Northeast region has the smallest interest margins of any area,” added Runyon, “and deposit costs for banks in the Northeast are higher, making national rate comparisons unreliable.”
Certificate of Deposit rates
Bank 6-month CD 1-year CD
Allstate Bank 2.27% 4.40%
Bank of America 2.48% to 4.18% 3.45% to 4.32%
(depending on amount invested)
Cape Cod Cooperative Bank 3.00% 3.25%
Cape Cod Five Cents Savings Bank 3.14% 3.56%
Citibank 5.35% 4.11%
Citizens Bank of MA 2.70% 3.00%
The Community Bank 4.25% 4.65%
Countrywide Bank 5.50% 5.65%
Eastern Bank Call 1-800-EASTERN
First Citizens Federal Credit Union 3.25% 3.45%
ING Direct 5.00% 5.25%
Rockland Trust Company 1.98% 1.98%
Salem Five Bank 2.10% 3.20%
Seamen's Bank 3.65% 4.90%
Sovereign Bank 2.70% 3.57%
TD Banknorth Massachusetts 3.00% 5.00% (15 months)
Wells Fargo 2.75%-3.70% 3.25%-4.15%
(depending on amount invested)
National Average 4.63% 5.09%
Source: Bankrate.com and individual bank Web sites. Many banks require minimum deposits. Rates as of July 30, 2006.
Originally published in the Sept./Oct. 2006 issue of Cape Business.
Joy Jordan is managing editor of Cape Business magazine. She has worked in the technology and publishing industries and was chief copy editor for Cape Cod Community Newspapers. 
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