Beware of regional rate differences

April 23, 2012

| MoneyRates.com Senior Financial Analyst, CFA

Regional and community banks are often recommended as a solution to the low interest rates offered by large banks -- and for good reason. MoneyRates.com has found that the rates on savings accounts and money market accounts offered by the nation's largest banks are generally lower than the overall average rates for those accounts.

Unfortunately, the viability of this solution may depend on where you live. Recent data from Market Rates Insight shows that deposit rates can vary significantly from state to state.

Regional differences in deposit rates

Market Rates Insight found the highest average deposit rates in Iowa (0.80 percent). The lowest average deposit rates appeared in South Carolina (0.28 percent). That's a 0.52 percent difference from highest to lowest.

These regional differences can feed upon themselves. A bank in a state with a high average rate will have to offer a little more to compete for deposits, thus pushing that state's average up further. By the same logic, a bank in a state with a low average rate doesn't have to be as competitive, so it and its peers will tend to offer lower rates.

Getting the best rates -- wherever you live

Your location may make it more difficult to get the best rates on deposit accounts, but no matter where you live, there are things you can do to earn the most interest possible:

  1. Choose the right solution for your needs. There are differences between savings accounts, CDs, and money market accounts, including the rates they offer. Consider the amount and timing of the access you need to your money, and choose the solution which gives you the highest rate with the flexibility you need.
  2. Always shop for the highest rates. Whatever type of account you choose, understand that the rates for each of these products vary greatly from bank to bank. Always shop around -- never assume rates will be pretty much the same wherever you look.
  3. Mid-sized banks may be the sweet spot. While large banks tend to offer low rates, MoneyRates.com research suggest that small banks are also often at a rate disadvantage. According to MoneyRates.com's data, mid-sized banks (those with $5 billion to $25 billion in deposits) offer the highest rates on average.
  4. Consider online banks in your search. Online banks are especially significant to this discussion because they side-step these regional differences and tend to offer higher rates than traditional banks.
  5. Look for jumbo rates if you have a large deposit to make. Though this advantage has been diminished in recent years, some banks still offer slightly higher rates for very large deposits. If you are making such a deposit, see if you can get a little more for your money.

Regional differences may put some areas of the country at a rate disadvantage, but smart shopping, the availability of information and online banking options can help level the playing field.

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