Want a Better Deposit Yield? Don’t Be a Sleeping Saver

If you’ve shopped for a deposit account – be it a high-yield savings account, money market account or a certificate of deposit (CD) – you’ve probably encountered this dilemma: You see a great yield at an online-only bank, but not at your bank or credit union. What if you want a high-yielding savings account but don’t want to spread your money across another bank?

I often hear this when talking with friends who want a better annual percentage yield (APY) on their deposit accounts. They typically have three banks, two retirement brokers, a few 401(k) accounts and a Health Savings Account (HSA) from a previous job. They’ve looked at what their banks have and want something better, but moving considerable savings to a new institution isn’t always appealing; they don’t know what a new bank will be like or if it will be worth the trouble. 

I tell them they’re probably in a good situation to negotiate with their current banks. Here’s why. 

First, they already have more than one bank. They can transfer money without going through applications and filling out forms, and suggest to the bank that they can move their money to the other bank.

Second, if they’re like most people, they’ve had the same checking account with the same bank for an average of 17 years, according to a previous Bankrate survey. Often, they’ve opened savings accounts at the same bank. Industry insiders call these people “sleeping savers” – banking’s deposit profits come from so-called sleepers because they’ve likely settled for a lower APY. 

Now, of course, my friends could always just “wake up” and shop banks to find a better deal, but then they’d have to move money to another bank. So, what can they do? 

It’s possible to negotiate a 2 to 3 percentage point rate bump from a bank or credit union. Here’s how.  

Loan demand: The driver of deposit rates

First, you must know how much your current banks or credit unions need deposits. 

Many consumers believe the Federal Reserve solely determines deposit interest rates. While its policy plays a role, banks can also price deposits based on a different factor that can more significantly impact their rates. It’s called loan demand.

Have you noticed that some banks still offer APYs higher than 4.7 percent, even after the Federal Reserve cut its federal funds rate to a range of 4.25 to 4.5 percent, while other banks dropped their savings account yields immediately after the Fed’s announcement? Meanwhile, other banks raised their rates little. That’s because banks manage their funding needs in correspondence to various financial factors; one of the most important is the loan-to-deposit ratio (LTD). The money lent out as loans is, in part, your deposits. That’s why banks can pay interest on your deposits they’ve borrowed from you.

Think about it this way:

• A bank with surging loan demand will feel more pressure to attract deposits. To do that, they raise rates to lure customers.
• A bank with sluggish loan growth isn’t under that pressure, so they leave them low.

How does that help you? If your bank needs money from deposit accounts to fund their loans, they’re either already offering current, and would-be customers, higher interest rates, or they will soon. And they could offer competitive APYs regardless of what the Fed does in the future.

Loan demand is up at banks

LTD is not the only factor influencing a bank’s need to gather deposits. After the COVID-19 pandemic, for example, many banks and credit unions had so much deposit money that they simply didn’t need more. That said, a high LTD – in the ballpark of 100 percent – implies a need for deposits.

Before January 2020, for example, the commercial loan level among all commercial banks was 19 percent lower than it is today. It’s near an all-time high now, setting aside the spike caused by society opening back up after the pandemic. Commercial loans are the primary asset banks use to earn revenue and pay interest to depositors.

If you’re now wondering, “What about my bank?” you’re in luck. There’s an easy way to check your bank’s LTD.

How to monitor your bank’s LTD ratio

Let’s look at how you can use loan demand to your advantage and how to find your institution’s LTD ratio.

Banks must report their loan volumes to the Federal Deposit Insurance Corp. (FDIC) quarterly to obtain insurance on their deposits. You can view those reports on any U.S. bank on the FDIC’s website. All you need to do after clicking the link is:

1. Select “Bank Name” in Search Type
2. Enter your bank’s name
3. Select the bank’s state and headquarters city (usually found on its website)
4. Hit the “Search” button and then “View Details” on the bank result that appears
5. In the top section, under the Main Office Address, click on “Create financial reports for this institution.”
6. In Report Type, select “Performance and Condition Ratios,” and hit “Generate Report”
7. Expand the “Condition Ratios” section
8. And there, you’ll see your bank’s “Net Loans and Leases to Core Deposits” ratio.

If you have an account at a credit union, you can view similar reports on the National Credit Union Administration (NCUA)’s website. All you need after clicking the link is:

1. Enter the credit union name and state information
2. Click “Find”
3. Select “View” for your credit union in the search result
4. That takes you to a detail page. The “Call Report” option is selected by default in the right-hand menu. Click the drop-down and select the most recent reporting month.
5. Click “Download” and save the report to your desktop
6. Open the file and search for “TOTAL LOANS & LEASES” and “Total Shares and Deposits”
7. You are looking for “total loans and leases” compared to “total shares and deposits.” If the former is similar or close to, the latter, then the credit union has a high LTD of around 100 percent. (If total loans and leases is less than total shares and deposits, then the credit union’s LTD will be lower.)

You’re looking for one of your banks, or credit unions, to exceed 100 percent LTD or to be close to it. Generally, once you get below 80 percent LTD, it’s more challenging to tie loan growth to a need for deposits now or soon. 

Remember, you’re going through the trouble of this research because you have one of two options: 

• The risk of trying a new bank
• The work of researching your current banks 

Here’s how you can test if you can get a better rate from your current bank now that you know its LTD. 

How to negotiate a better deal 

If you’ve had your deposits parked at any institution for a while, you’re probably getting the disclosed rate. Most institutions have four interest rate levels (“disclosed” is the lowest level of the four): 

• disclosed
• promoted
• negotiated
• retention

You can often see disclosed rates on a CD renewal notice; they‘re the “I hope they don’t notice” rate. This is why the average APY on a U.S. savings account is 0.62 percent when rates on new savings accounts are 4 percent APY or more; sleeping savers aren’t noticing that they’re getting the disclosed rate. 

Knowing the LTDs of smaller banks or credit unions – especially those with high LTDs – helps. (A small bank is based in your state or city and only has a handful of branches.) The larger your balance with the bank, the more it helps. If the bank needs deposits to fund loans, research its “promoted” rates on its website and compare them to local competitors, as well as to the other banks you already work with.  

If local promotions are higher and your bank’s LTD is high, push for a 25 basis-point (or 0.25-percentage-point) increase at the local branch. If you do this, find interest rates on products of the same type and term as you’re seeking. (If you want a CD, for example, find comparisons for CDs of the same term.) If you have around $10,000, and you’re engaging a high-funding-pressure institution that’s chartered locally, you have a good chance of getting that basic rate bump; then you decide if that’s good enough for you. 

This is where all your research pays off. If the bank provides you with a 0.25-percentage-point increase, is that new rate on par with what’s available locally? If not, you have two choices: Accept the increase or keep pushing. 

When should you keep pushing for a higher rate? Ideally, this is done when your savings account is at the national average. Your new 0.25 percentage-point increase, plus 0.62 percent APY, is still less than 1 percent APY – not very compelling when a new online-only bank would give 3 percent or 4 percent APY. You now say, “I have a savings account at another bank, and it offers X percent for new accounts. I need to be closer to that, or I need to consider moving my savings there.” 

Now, you’ll probably hear their retention offer – offers not known to the public and reserved for this situation – which will likely be 2 percent or even 3 percent APY above what you had if you were a sleeping saver.

Remember that you set out to get a reasonable rate and avoid adding a new bank. If your current banks or credit unions don’t cooperate, you can always shop around. 

What if my primary bank is a large nationwide institution? 

The bigger the bank, the less likely your deposits are bargaining chips for you. 

However, you can still secure an increase depending on your situation. Many have higher rates for higher balances. If, for example, your savings with the institutions amount to $100,000 or more, they may just give you a higher rate because you ask for it – some won’t automatically provide you that tiered higher rate without you asking. Other institutions have tiered rates that go down to balances of between $0.01 and $9,999.99, but the bump rate is low – amounting to a few basis points.

Bottom line   

You don’t need to chase every rate change. If the Federal Reserve increases rates, it may not mean your bank can raise its rates. It can be a very different story, though, if the bank is making money on loans.

Engage your bank in ways consistent with their need for your deposits, and you’re likely to obtain higher interest rates without spreading your money over too many institutions. This allows you to form your deposit options in your favor: Either a current bank will give you something better, or those higher rates at new banks become more worth the hassle.