Banks keep pumping out low-rate, short-term CDs despite the fact their customers don’t seem to want them, according to a nine-month analysis of the product by Market Rates Insight in San Anselmo, Calif.

“It’s puzzling,” said Dan Geller, executive vice president of MRI. “Customers are pulling money out of short-term products and in response banks are introducing more short-term products.”

Indeed, deposits in short-term CDs, those with maturities of 12 months or less, declined 12% in the first three quarters of this year, from $779 billion to $675 billion, while at the same time banks and credit unions added 26% more CD products. (Geller is not at liberty to provide the exact number of CDs on the market.) “The question is, why make more of what their customers say they don’t want?” Geller said.

The problem is, the majority of banks aren’t sweetening the deal. While the highest-yielding short-term CD is paying 1.82% on a 12-month product, the average short-term CD pays out just 60 basis points. Compare that rate with long-term CDs (36 months or more), which are paying an average 1.41%, hardly a king’s ransom but at least they’re up by 4%, or $4 billion, to $109 billion.

“Banks should be more attuned to what customers want and how they’re voting with their dollars,” Geller says. “If there’s a decrease in demand for short-term CDs and an increase in demand for long-term CDs, banks should focus on where the demand is.”

By comparison, the single one-year fixed annuity Beacon Research tracks, the Liberty Bankers One, which is comparable to a one-year CD because both its surrender charge and rate term is 12 months, currently pays 1.2%. Three-year fixed annuities pay an average 1.34%, with a high of 2.3%, slightly more generous that what bank CDs are paying, but still “nothing to write home about,” conceded Judith Alexander, director of sales and marketing at Beacon Research.


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