Bank of America hacks yields on longer-term CDs

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Bank of America Corp. this week slashed interest rates on its longer-term certificates of deposit, a move one rate-tracker says is likely a response to expected declines in fee income under new federal rules limiting overdraft charges.

San Anselmo, Calif.-based Market Rates Insight said it found that BofA hacked yields on its five-year CDs by an average of a half-percentage-point, to 1.75% from 2.25%.

The bank’s three-year CD yield was cut to an average of 1.1% from 1.5%, the firm said.
BofA’s CD yields can vary by state.

Dan Geller, executive vice president of the rate-tracking firm, wrote a report earlier this month predicting that many banks would cut deposit rates to make up for changes in rules governing overdraft fees.

Those changes, ordered by the Federal Reserve effective July 1, give consumers more say in how their bank handles account overdrafts involving debit cards and ATM withdrawals. The net result is expected to be a drop in the lucrative fees banks assess for overdrafts and for automatic overdraft-protection plans.

Some studies have estimated that the banking industry would take a $15-billion annual hit in overdraft-fee income.

“Interest rates on deposits are very likely to decline to make up for some or the entire non-interest income shortfall as a result� of the rule changes, Geller said.

Asked what spurred the CD yield cuts, a BofA spokeswoman said the changes were “reflective of the current rate environment and consistent across our industry.�

CD yields have continued to decline over the last year as the Fed has held its benchmark short-term interest rate near zero. Paltry yields have triggered a massive outflow of cash from CDs across the banking industry, as consumers have had little incentive to lock up their money. But much of that cash has just been parked in bank money market accounts and other short-term accounts that pay even less than CDs.

If they’re looking for cover to justify another round of rate cuts, banks can point to the latest drop in market interest rates on Treasury securities and other bonds. Expectations of slowing economic growth (confirmed by the government’s second-quarter gross domestic product report on Friday) have pulled the two-year T-note yield down to a record low of 0.55% from 0.75% in mid-June.

The five-year T-note yield was at 1.60% on Friday, down from 2.08% in mid-June.

In sum, there is just no good news out there for people trying to earn a decent income on savings they can’t afford to lose.

-- Tom Petruno