Ask the expert: A million dollar question
July 18, 2011
Q: Where would I find the best bank interest rates for large deposits? By large I mean a million dollars or more.
A: Trying to decide where to deposit a million dollars is a nice problem to have, but the answer is not all that simple.
Under normal circumstances, banks would be quite eager to attract large deposits, but these are not normal circumstances. The persistently sluggish economy has meant a lackluster recovery in the lending business; weak lending means that banks have fewer ways to put deposits to work profitably. So, banks are not making much of an effort to attract deposits.
This is reflected in the low level of interest rates on savings accounts, money market accounts, and CDs in general, and in particular in the diminishing premium banks are willing to pay for large deposits. Two years ago, money market rates for jumbo deposits ($100,000 or greater) were 21 basis points higher than rates for ordinary deposits, according to national averages posted by the Federal Deposit Insurance Corporation (FDIC). Now, that premium for jumbo deposits has been slashed by more than half, to 10 basis points.
So, don't expect to see any especially enticing offers for large deposits advertised. Your best bet is to shop MoneyRates.com for the best rates you can find for general deposits, and then try to negotiate a little extra based on the size of your deposit.
Chances are this conversation will gain you an invitation to discuss investment products with a bank representative. This may be appropriate for your needs, but be mindful of any step-up in risk these entail, and also remember that investment products, even if offered by a bank, are not covered by FDIC insurance.
Finally, don't forget that the FDIC insurance limit is $250,000 per depositor, per bank. You may find it best to spread your deposit out among different banks to stay within this limit.
Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to the "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.