Without making broad changes to prices for money market and savings accounts, banks have been offering special CD rates, a defensive approach they are taking in part to keep existing deposit customers

Faced with pressure to pay higher rates, banks and credit unions are turning to special offers – with rates sometimes 3 percent or higher – to lock in deposits. 

Months after increases in the federal funds rate began affecting mortgages, commercial loans and other lending products, significant rate increases generally have not happened across checking, savings and money market products.  

As banks continue to plan how to manage the liabilities side of the balance sheet and the costs associated with paying higher rates on deposits, these deposit rate specials give banks opportunities to keep some deposits from fleeing while still finding opportunities to build new relationships with consumers.  

“This is the highest rate that we’ve offered since we first entered this market,” said Roxann Cooke, JPMorgan Chase’s managing director and regional director of banking. “This just gives [customers] another way to come in and experience Chase and have that personalized conversation with our team of bankers – it’s not this one-size-fits-all-approach.” 

Big Clients Push for Bumps 

Even in a typical rising interest rate environment, adjustments to deposit rates lag behind the changes seen in lending rates. What’s different about 2022 has been the pace and unexpected nature of the Federal Reserve’s rate increases, said Jeffrey Reynolds, a managing director at Newburyport-based Darling Consulting Group.  

Rates have not increased at such a pace since 1994, Reynolds said, and banks that began the year with one set of expectations have seen their net interest margins benefit from strategically holding back on raising deposit rates. 

“They know that some of that’s going to be going back on a lag to the deposit customers over time as more of them are starting to ask for higher rates,” Reynolds said. “It’s just a question of how they go about doing it.” 

For customers looking for more interest on their deposits, doubling a money market rate from 5 basis points to 10 basis points might not keep them from moving their funds elsewhere, Reynolds said, while other depositors might not even notice the difference.  

Some banks have lost deposits recently. Retail deposits, particularly at big banks, have declined somewhat as pandemic-related aid has been spent, Reynolds said. Darling Consulting Group has also seen banks lose some of their larger account balances recently, including municipalities. While large deposit accounts might represent only 5 percent of a bank’s customers, Reynolds said, they could account for 50-65 percent of its total deposits. 

For some towns and cities, investing directly in Treasurys has provided a better return than a bank account. But banks do have options for keeping large-balance clients, including negotiating a higher deposit rate, Reynolds said. 

“It’s not uncommon to see a bank do a one-off negotiation with that individual customer,” Reynold said. “It’s not a posted rate, so they don’t have to upset the apple cart of their entire deposit pricing strategy.” 

Special Offers for Existing Customers 

Without making broad changes to prices for money market and savings accounts, banks have been offering special CD rates, a defensive approach they are taking in part to keep existing deposit customers, Reynolds said. 

Some banks have short-term CD specials, like Needham Bank, which is offering seven-month and 11-month CDs with a 2.50 percent and 2.75 percent annual percentage yield, respectively. 

Others have increased rates on longer-term CDs. Salem Five has several specials available, including a 24-month CD with a 3 percent APY. Cambridge Savings Bank has a 3.5 percent APY on special 23- and 31-month CDs. Metro Credit Union has a 36-month CD with a 3.5 percent APY.  

And some banks and credit unions do have specials on certain types of savings accounts and even money market accounts.  

As banks figure out what to do with deposit rates beyond these specials, they will also have to consider what to do with loan rates.   

“With the cost of deposits going up, it’s forcing a reaction on the loan side that’s creating quite a few problems with the outlook for 2023 for a number of banks because they’re looking at their loan volume basically tapering off,” Reynolds said. “And at the same time, the cost of funds is likely to come up pretty significantly.” 

Tool to Land New Depositors 

Banks could see other benefits from CD specials. 

Offering the higher CD rates provides another opportunity to build relationships with customers and prospects, said Cooke, head of Chase Bank’s New England branches. Chase is offering CD specials in all its U.S. markets, and Cooke said the bank is offering its highest rates, up to 3.5 percent in Massachusetts, where the bank continues to open more branches. 

Diane McLaughlin

“We really wanted to make sure that this hyperlocal approach will allow us to call attention to our presence in this market,” Cooke said. “This really shows what our plans are for growth and our commitment to supporting the community and being the bank for all.” 

To be eligible for Chase’s special rates, customers must have a personal or business account, and the minimum deposit amount is $1,000. Employees will be contacting customers to let them know about the rates. Cooke said these conversations will help branch staff uncover more of their customers’ needs and goals. 

“When the customer sits down, we really take the time to build a relationship with them,” Cooke said. “Through those conversations is when you discover what the customer is looking for – whether it’s our products or services – and really help to build their profile to make sure that one of these products or services fits within what they are looking to do for their financial goals and needs.”