Odd Term CDs

Odd Term CDs

Federal Regulators are currently accepting public comments for modernizing outdated broker and listing service rules for insured depository institutions (banks). (The proposed changes first appeared in the Federal Register on February 6th and comments will be accepted through May 7th.) And we can't help but think that these pending and unknown changes are what has given rise to a flurry of odd term Certificates of Deposit (CDs).

What began as simple categories based on the number of months in a year has morphed into anything but. For example, 5-Star American Eagle Bank of Chicago, IL has three separate 1 year(ish) personal CDs advertised on its website. A standard 12 month CD has an annual percentage yield (APY) of 1.85%. It's not a bad rate, nor is it a great rate. It's a good rate. In the past, this could well have been its only rate for 1 year. But times have changed.

Now it has a 12 month Relationship CD at 2.00% (better). To earn this rate, the customer must open another qualifying checking or savings and maintain a balance of $5,000. But that's not all, American Eagle Bank also has a 14 month Relationship CD for 2.75% (best) which, in addition to maintaining the $5,000 account, is only available for residents (consumers only) of Kane and Cook Counties. Each of these options, rollover into a 12 month CD upon maturity.

This is clearly an incentive to attract more local deposits that, at least in theory, will stay for a long time. What is less clear, is that by using 14 months instead of a standard 12 or 18 month term, it is not picked up by most listing services. Most listing services scan the web for standard terms. Another benefit to using atypical terms is that it makes it very difficult to compare - either locally or on a national level - to prevailing rates.

With rules about to change regarding what is (and isn't) considered a brokered deposit, many banks don't want to be caught with a lot of out-of-area deposits. And we can't blame them. While the rules look like they will open some doors, we can't be sure exactly how until a final rule is issued. Using odd terms will give these banks an upper hand, regardless of how the final rule reads.

What's too many, and even the definition of a brokered deposit are, at this point, a matter of debate. Over the next several weeks, we will be examining several aspects of that debate. In the meantime, in addition to the rates you see on our Consumer CD rate page, you may want to check out your local banks and/or credit unions to see if they are offering any incentives like American Eagle Bank (above).