Sovereign Bank and the 3% CD

Maybe it’s a sign of the times, possibly the reflection of the new reality. Banks are not offering high rates for deposit accounts. Money markets, savings accounts and certificates of deposits are riskless investments; however they are necessary vehicles for the economy. Without these deposit accounts banks have no reserves to give loans. No loans, no (or little) new business or growth of existing businesses. The old adage is true: “One needs money to make money.” Yet, bank rates are a paltry 0.01 – two point something per cent.

Through all of my searching, the highest CD rate I have found is through Sovereign Bank. A five year CD is being offered for 2.96% APR (3.00% APY). This may seem interesting, given that they are a brick and mortar bank. Other 5 year CDs from internet (and internet dominated) banks have a much lower APY [Ally Bank 2.40% APY, Sallie Mae Bank 2.35% APY, Discover Bank 2.25% APY].

Oscar Wilde explains growing up by saying, “The young know everything, the middle-aged suspect everything and the old believe everything.” By this measure, I guess I have transitioned to being middle aged because I immediately questioned the motives of such a discrepancy. After speaking to a Sovereign Bank branch manager, I learned there is push to get savers like me, who are 98% internet based with no allegiance to a bank, back to coming into and using banks where one can physically walk into. Offering a high rate is certainly one way to make me walk through a threshold.

However, there is also another reason for the high rates aside from bringing people back…bringing in new people. Most readers probably have never heard of Sovereign Bank. It used to be traded on the NYSE under SOV, but in 2009 (January 30) Banco Santander (NYSE:STD) completed its purchase of Sovereign. With this new international backing, Sovereign, which was severely hurt by losses related to auto loans and stock in Fannie Mae and Freddie Mac, now is looking for growth. Branches currently exist in New Hampshire, Massachusetts, Rhode Island, Connecticut, New York (City and Long Island), New Jersey, Pennsylvania and Maryland. Notwithstanding, I’m sure they would be happy to take your money from any state.