How Banks are Increasing CD Yields to Attract Savers Amid Uncertain Federal Reserve Rates: Sallie Mae and Others Pushing to 5.5%

Expanding Yields on Bank Products Attract Savers

The Federal Reserve’s decision on how long to maintain high interest rates remains uncertain. However, select banks are continually increasing interest rates on various products in order to attract savers’ funds. Sallie Mae has recently raised the annual percentage yield on its one-year certificate of deposit to 5.5%, a 40 basis point increase. (A basis point is equivalent to 0.01%). Other institutions that have recently increased rates include Marcus by Goldman Sachs and Synchrony Financial, offering yields of 5% and 5.1% respectively on one-year CDs. The Federal Reserve’s series of 11 rate hikes since March 2022 have helped boost yields on such investments, as well as on Treasuries. Analysts predict that these improved yields will continue to rise in the near future. In his report on deposit trends, Wells Fargo analyst Michael Kaye stated, “We anticipate further rate adjustments in the coming weeks.” Online institutions offering 2-year CDs also offer higher rates. Marcus and Synchrony have each increased yields by 5 basis points to 4.4% and 4.35% respectively. CDs attract “sticky” deposits to banks, as customers incur a penalty for early withdrawal. It is important to note that once customers have secured a CD, they are locked into that rate for the specified term. This differs from high-yield savings accounts where banks can adjust rates at their discretion. Investors are curious as to how much longer these banks will continue to increase their yields. Morgan Stanley analyst Betsy Graseck suggests that historically, deposit costs usually peak 1-2 quarters after the Fed begins cutting rates. She continues, “Even though the market is not anticipating any further rate increases this cycle, we expect deposit costs to continue rising until the Fed cuts rates.” ( AsumeTech’s contributed to this story.)

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