Declining Profit Margins a New Threat to Bank Rates

It's a delicate balance. Sometimes banks want to attract deposits in savings accounts, money market accounts, and CDs. Other times, those accounts can be almost a liability. According to a recent story in US Banker, now is one of the latter times, when some banks may actually shun new deposits.

No, that doesn't mean you have to give back the toaster, or whatever incentive you may have been given to open an account, but it is yet another reason you might be seeing low savings, CD, and money market rates.

MoneyRates.com has previously described how the absence of profit opportunities for banks (due to a weak loan environment, tighter investment restrictions, and higher costs) takes away from the incentive for banks to offer higher interest rates to attract deposits. Now it seems that for some banks, those deposits are actually becoming a drag on profitability.

A couple years ago, when banks found themselves over-extended in terms of loans relative to deposits, they sought new deposits to stabilize their balance sheets. Now the ratio of loans to deposits has tipped in favor of deposits in many cases. That's good for stability, but bad for profit margins. It represents a large capital base that cannot be fully utilized for profits in the current environment.

In finance parlance, this means some banks consider themselves currently under-leveraged. This means that those banks may want to actively discourage further deposits for the time being.

Bank accounting is an odd world, but it's important to remember there are thousands of banks out there, each with its own unique accounting situation. Therefore, while some banks aren't hot on the trail of deposits, it is worth looking for those that are. That is where you will find the best CD rates, money market rates, and savings account rates.

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