By RUTH SIMON
Where's the yield?
That is the question frustrated savers are asking these days, as interest rates hit new record lows with depressing regularity.
People who need a pool of cash for emergencies or looming expenses usually look to keep it in banks or credit unions, where deposits are protected by the Federal Deposit Insurance Corp. or the National Credit Union Administration. Yet the yields on certificates of deposit, savings accounts and money-market accounts, on average, are the lowest they have been in at least 50 years, according to research firm Market Rates Insight.
Better deals are out there, however. An analysis of more than 8,300 banks and credit unions conducted for The Wall Street Journal shows that smaller banks often offer better rates than giant banks, while bigger credit unions often beat smaller ones. Online banks, meanwhile, are most competitive in savings and money-market accounts. And location can make a big difference in the rates savers get.
For example, credit unions and small banks, on average, pay 0.4 to 0.5 percentage point more on three- and five-year CDs than big banks do. Savers can get that extra yield "for doing almost nothing, without taking on any additional risk," says Sol Nasisi, president of the website BestCashCow.com, which tracks rates on savings products and mortgages.
For the study, Mr. Nasisi examined rates on CDs and savings and money market accounts offered by more than 80% of all U.S. banks and more than 30% of credit unions. The rates are current as of July 16.
To be sure, rates can fluctuate frequently, and many of the best deals aren't available to all savers. Small banks often won't accept money from outside the areas they serve, while credit unions typically have membership requirements, though some have broad charters.
A bank or credit union's appetite for new funds tends to change over time. Nowadays, with loan demand weak, many lenders aren't looking for more deposits, particularly from new customers.
The most generous lenders range from tiny Reynolds State Bank in Reynolds, Ill., with about $100 million in assets, to Navy Federal Credit Union, the nation's largest credit union. The Vienna, Va., credit union has $49 billion in assets and branches in 31 states, the District of Columbia and 12 foreign countries.
Experts say bank products are most attractive if you have more than a small amount of money to invest and safety and liquidity are top priorities. They come with FDIC backing, generally up to $250,000, and tend to offer higher rates than money-market mutual funds, which currently average about 0.06%, according to fund tracker Crane Data.
Alex Steinbergh, a real-estate investor and developer in Cambridge, Mass., this month moved $250,000 to a savings account at Blue Hills Bank in Hyde Park, Mass., which has $1.1 billion in assets.
"They were offering 1.1%," Mr. Steinbergh says, adding that he was earning "nearly nothing" on his savings at another local bank. "For the time being I'm assuming [the rate] is going to stick."
Blue Hills began offering the higher yields last fall, says CEO William Parent, who hopes savers lured by higher deposit rates will turn to Blue Hills for other banking needs. The rate is available to Massachusetts residents who deposit at least $10,000. Mr. Parent says the bank can afford to pay higher rates on savings accounts because customers are likely to open checking accounts and do other business that will be more profitable for the bank. Accounts can be opened online.
The BestCashCow.com study shows that careful shopping can pay off, even in a low-rate environment. Among the findings:
Banks with less than $1 billion in assets offer higher yields on average than larger lenders. The nation's biggest banks, or those with more than $10 billion in assets, pay on average just 0.57% on three-year CDs, according to the analysis, well below the 0.99% average for their smallest competitors.
With credit unions, more assets can be better. Navy Federal Credit Union, for example, offers five-year CDs yielding 2.05% on deposits of $100,000 or more. Savers who deposit at least $50 and then agree to have at least $15 deducted from their paycheck each month can do better: A one-year CD yields 3% on savings of up to $3,000.
The credit union is open to active duty soldiers, reservists and civilian and retired employees of the Department of Defense, which includes Air Force, Army, Navy, Marine Corps and defense contractors, and their immediate families. The credit union estimates there are 11.8 million people who qualify for membership.
Online banks aren't always the best deal in town. About 18% of credit unions and 6% of banks beat the best online rates for five-year CDs, according to the analysis.
Fort Knox Federal Credit Union, in Radcliff, Ky., with $1.1 billion in assets, pays 2.25% on 59-month CDs, easily topping the 1.90% payout on a five-year CD of at least $100,000 from CIT Bank (BankOnCit.com), which is the top online lender and has $9.6 billion in assets. The credit union is open to residents of central Kentucky, employees of one of 500 companies and members of the nonprofit American Consumer Council.
Online banks typically offer superior rates for savings and money market accounts. Only a handful of brick-and-mortar competitors beat the top online deals. BofI Federal Bank, with assets of $2.3 billion (ufbdirect.com), is among the top online lenders, paying 1.25%.
Where you live can determine how much you earn. In Iowa, where lots of small lenders are vying for customer money, yields on three-year CDs average 1.11%, or 0.2 percentage point better than the national average, according to the analysis. Ninety-seven percent of Iowa banks have less than $1 billion in assets, according to the FDIC.
The University of Iowa Community Credit Union, with $1.6 billion in assets, offers 22-month CDs yielding 1.75% and 44-month CDs yielding 2.5%, with a 0.2 percentage point bonus for deposits over $250,000. The credit union is open to residents of 42 Iowa counties and University of Iowa alumni.
The pickings are far slimmer in Rhode Island, where rates on three-year CDs average 0.74% and only 64% of banks have less than $1 billion in assets.
"You have a lot of good deals in Texas at both banks and credit unions, but in Florida there are much less," says Ken Tumin, co-founder of DepositAccounts.com, which tracks savings rates.
Rates for big banks vary by state, though these lenders tend to pay more attention to rates at other big banks than to those at smaller competitors. For instance, Bank of America (BAC),
Why Rates Differ
Many factors affect rates, including loan demand, competition and the desire to maintain strong customer ties. Small-town bankers like Darwin Hendrix say they try to keep rates as high as they can to help long-term customers.
"People have saved their money and depend on their interest," says Mr. Hendrix, chief executive of 101-year old Bank of Delight in Delight, Ark., which has $83 million in assets and offers local residents three-year CDs yielding 2.02% and five-year CDs yielding 2.52%.
Norman Wait, president of Reynolds State Bank in Illinois, says most of his competitors are paying 0.25% on savings. "To me, it's an insult," says Mr. Wait, whose bank pays 1.61% on money-market accounts and 2.01% on one-year CDs.
That is good news for customers like Greg Close, a 47-year-old farmer, who has been a Reynolds customer since he was a kid. "It's a wonderful bank to run a business through," Mr. Close says. "When you go in there, they know who you are."
Outsiders, by contrast, are likely to get the cold shoulder from Mr. Wait, who wants to keep bank assets below $100 million to avoid tougher regulatory reporting requirements. When CDs held by customers with no other ties to the bank mature, "we are declining to renew them," he says.
Other bankers say they need to offer higher rates to keep up with the competition. "My largest competitor in the area is not the other smaller-size commercial banks; it's a large credit union in the area, and we generally offer the same rates," says Kirk E. Wilmshurst, chief executive of Massena Savings & Loan in Massena, N.Y., which has roughly $150 million in assets and pays 2.04% on three-year CDs, but accepts only local deposits.
Because the best deals often aren't available to everyone, you will need to do your homework. Here are some tips.
Understand the restrictions. Credit unions often have membership requirements, while local banks often cater to the community. American Airlines Federal Credit Union, which offers five-year CDs yielding 2.27%, for instance, is open only to airline employees and others who work in the air transportation industry and their immediate families, though the credit union estimates that includes people who work for roughly 400 companies.
J. Doak Hartley, president of Industry State Bank in Industry, Texas, with about $500 million in assets, says he generally doesn't accept deposits from savers outside his rural Texas marketplace, but will sometimes make an exception for Texans who make the trip to Industry (population about 300).
Pay attention to maturities. With rates this low, "you have to be cautious about locking up funds for longer than you intend to just to chase yield," says Greg McBride, a senior financial analyst with Bankrate.com, noting that even most five-year CDs yield less than 2%.
Patsy Wilson, a clothing designer who keeps her savings at the Bank of Delight, has been stashing her funds in one-year CDs, even though longer maturities offer higher yields. "I keep thinking things will get better," Ms. Wilson says.
Take advantage of competition. If other financial institutions in your area offer higher rates than your lender, you might be able to negotiate a better deal with the institution that has your business.
Keep an eye on early withdrawal penalties. For longer-term CDs, stick to institutions where the early withdrawal penalty is equal to no more than 90 days interest, advises Jerry Davis, a financial planner and certified public accountant in Gresham, Ore. "If you can wait it out for a year or longer, you will have a very attractive rate" compared with other short-term investments, even if you need the money before maturity, he says.
Mr. Davis also advises splitting money into the smallest increments that can earn the best returns. Mr. Davis cleaved his money into three $30,000 chunks when he purchased six-year CDs from his local bank. "If all of a sudden I needed $15,000, all I would have to do is break one of the CDs," he says.
American Eagle Bank of Chicago offers a five-year CD with a 2.0% yield and early withdrawal penalty equal to 90 days of interest, with a 0.10 percentage point bonus for deposits of $100,000 or more. The high rates are available to current customers and Chicago-area residents.
Many big banks levy much steeper charges. On CDs with terms of 12 months or longer, J.P. Morgan Chase (jpm),
Consider multiple relationships. Some banks and credit unions reserve the best deals for customers who use them for more than just savings. Connexus Credit Union in Wausau, Wis., has assets of $433 million. It pays 2% for a five-year CD to customers with "active checking," but 1.5% to others.
To get the best rates, customers must receive statements electronically and meet other requirements. Membership is open to employees of Liberty Mutual Insurance and people who join a nonprofit associated with the credit union.
Says Connexus President J. David Christenson: "We want our members to have a full relationship with us."