Why are Wells Fargo CD rates so low?

This is a real head-scratcher for me. Wells Fargo’s 1-year CD rates for 100,000$ deposits are only 0.10% APY. They offer some special deals which are better, but still absurdly low, for example 11 months at 0.15% APY. Some other banks offer rates sometimes higher by a factor of ten (!!!). For example there is one I am looking at for 12 months that is at 1.00% APY.

Is there something I am missing here? The other banks’ CDs I am considering also offer FDIC, so I don’t think I am in danger of losing my money. Why on earth are Wells Fargo’s (and a few other banks’) CD rates so low??

Because Wells Fargo doesn’t particularly want your cash at the moment. So they don’t pay very much to get it.

The places that are offering the highest rates are generally banks that have a need to increase their deposits. Either for reasons of keeping their ratios in order or because they’re loaning out money in large amounts and need more cash to do it.

I think that’s too simplistic - why? Why wouldn’t they want more clients? The fed funds overnight rate is virtually nothing, so they are making money on this; if they lend out at an avg of 2%, which seems highly conservative, they still make lots of money.

Are they fearing some kind of antitrust heat, since they were until recently on an acquisition binge? I thought the W-F boys were Obama’s buddies, surely he’ll keep DOJ off their back.

We’re in a massive deleveraging period now. Companies have a ton of cash, and consumers are wary about taking on debt. Lending out money at 2% isn’t exactly a guaranteed proposition in this economy.

I don’t think banks are in the lending business any more.

It’s due to capital ratio requirements. Banks are required to maintain a 6% at a bare minimum. The money you deposit counts against that. Sure, in the longterm, they’d make money, but in the short run, their ratio drops. When it drops too far, that’s when the Feds step in. That’s what happened to wamu.

Not being a banker, help me out here… seems as though taking on more CD deposits would *help *the ratio, not hurt it.

Not if they have to pay above market interest rates. They aren’t lending, so your CD isn’t making them any money.

No, it really isn’t too simplistic. Wells Fargo (and the other big banks who are also mostly offering bare minimum CD rates) have no need for more cash.

They only make money on your money if they loan it out. For the most part they have all the lending cash they need. If they want more they have other ways of getting it that won’t cost them as much as getting it from you will.

As an example, my mother in law keeps about $130k in CDs with her credit union and earlier this year they sent her a letter as the term was expiring asking her to please consider taking her CD elsewhere as they had already had more cash than they could lend out safely (their terms others might disagree) and having extra deposits not earning money just cost them additional fees on the FDIC insurance meaning they would lose money on her.

Wells and Chase and BofA aren’t likely to go that far (as that is a pinch that wouldn’t be so significant for them), but it really does come down to they don’t particularly want your money in that form at this time.

Wells Fargo also has to pay the FDIC for insurance on your money. You may have heard the FDIC has been taking it in the pants the last couple years.

My bank does everything they can do get rid of me. Oh, my bank is Wells Fargo. To understand how little they want your money, their call center reps are trained to not even try for 1 second to discourage you from taking your money someplace else.

Call up unhappy about something, and they will steer the convo in this direction: * I’m sorry that your unhappy with the new drive thru fee, but you are free to take your money someplace else for a better deal; here are your options for withrawing it…*

Banks do lots of things with their time, effort and capital that earn more than a 2% return on investment.

Per their latest filing, Wells Fargo is sitting on $353.5 Billion in cash and cash equivalents ($1.260 Trillion total assets) against $1.123 Trillion in total liabilities. They don’t really need more cash.

Plus, if they did need more cash they could borrow it for almost as cheap as the 0.22% it would cost to get it from you (0.1% that they pay you in interest and 0.12% that they pay to the FDIC for insurance, plus any additional overhead for mailing you about the account the several dollars you cost when you call to cash out or just to ask a question, etc.)

But so long as it is FDIC insured, then shop for the best rate. Worst case is you have an administrative hassle getting your money should the bank you choose fold.

No, because when a bank takes money in deposits, it doesn’t become their money. It’s still your money. Capital ratio is the ratio of their total liabilities to total assets. Money in CDs or savings accounts is a liability. Money collected from late fees is an asset.

Remember, when you open a CD, you are lending the bank money. For the bank to call it an asset is like you counting your balance on your VISA card an asset.

That doesn’t make any sense at all. Yes, my balance on my VISA card is a liability, but the stuff I bought to get that balance are assets. To make it more clear, if I get a cash advance on my VISA for $100 my balance sheet is still 0. I have assets of $100 in cash, and a debt of $100. Similarly, the bank should count the cash in hand as an asset, and the CD as a debt.

I’m not an accountant, but I have taken 6 credits of Accounting.

The basic Double Entry Accounting equation is:

Assets = Equity + Liabilities

Cash is an asset. If the bank has $100 cash in its vault, then it counts as an asset on the left side. Now, on the right side, that cash may represent Equity if the bank itself owns the money (e.g. it is from account maintenance fees, late fees, interest earned on the bank’s investments, etc.). It represents a Liability if someone else owns the money, like you. Whether or not it is a liability or equity, it is still an asset.

Accounts receivable is also an asset. So if I owe the bank $100 in late fees, then that amount goes on the Left as an Asset and on the Right as Equity. Other assets are land, vehicles, precious metals, natural resources, stock held in other companies, bonds, and manufactured goods.

Equities include revenue, income from investments, paid in capital (e.g. what you get when you sell more of your stock to the public).

Liabilities include taxes, salaries, fines, cost of goods sold, accounts payable in general, and, notoriously, the value of gift certificates and gift cards sold.