Bloomberg Article Says Bank Competition for Your Money is Insanity

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Bloomberg published an article today in which several analysts and bank execs said the rates being paid by some banks was insanity (way too high). I guess they haven't heard of competition or of the saying he/she who has the cash makes the rules.

Bloomberg published an article today in which analysts and bank executives said the rates being paid by some banks was insanity (way too high).  I say let's see higher rates.  Savers are finally getting some measure of respect for their money.

"“You have a whole raft of smaller banks out there, some of which are in difficulty, who are paying rates that are bordering on insanity,” James Wells, chief executive officer of SunTrust Banks Inc., said in a conference call with investors Nov. 13."

The article goes on to say that:

"A key reason regulators pushed Wachovia to sell was that they were screwing up deposit costs up and down the Eastern Seaboard,” said Tony Plath, a finance professor at the University of North Carolina at Charlotte. “A lot of hot money was moving into Wachovia and other banks that weren’t matching Wachovia were getting clobbered.”

Now, I don't know about you, but I think that high rates are a good thing.  One of the central premises of sites like BestCashCow is that bank competition is the only way for you to earn a fair return on your money.  In the article, Ken Lewis, CEO of Bank of America describes peer bank Wells Fargo as a "rational pricer," code language for providing very low rates.  Bank of America has never been know for their generous rates either.  Bankers hate high deposit rates because they lower their profit.  Of course Ken Lewis wants rates low.  It makes his job easier and makes it easier to pay for all of the high rise buildings BofA operates in Charlotte, Boston, NY, and San Francisco.  It makes it easier to pay for the Countrywide and Merrill Lynch acquisitions.

But our goal isn't to make it easier for bankers, it's to get the best return for our money so we can pay the rent, send our kids to college, and maybe retire.  Consumers, people like you and me should also be working to maximize our return. But the secret a lot of banks don't want you to know is that you can get a much higher return without any additional risk just by doing a bit of research.  Check out the savings, cd, and money market tables on BestCashCow or the deals on Bank Deals or the info on other financial sites.  If your money is earning a significantly lower return, then you should change banks.  Don't be fooled by the fancy marketing and branding campaigns.  And because the banks covered on this site (and on most of the others) are FDIC insured, you can change banks without any risk.  Your money is covered up to  FDIC limits whether you are earning 1.2% at Bank of America or 4% at a smaller Internet bank. 

So the choice is really yours.  Do you want to put money into all of those banker's pockets?  Or, would you rather do a bit of research and put the money into your own?

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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Comments

  • Allen

    November 19, 2008

    It's insanity to put your money into a bank that pays less than 1%.

  • Rex George

    November 19, 2008

    After factoring in inflation, you're losing money putting your money into a place like BofA. Once you factor in the fees they charge, it makes no sense to deposit funds into a big bank that pays minuscule rates. You might as well hand them your wallet.

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