One California research firm says that banks are reacting to the new overdraft rules by decreasing the interest rates it pays out on accounts, such as certificates of deposit. The new rule went into effect on July 1, 2010. According to Market Rates Insight, the national average rate for certificates of deposit has declined by 0.06 percent since then. On average, certificates of deposit rates have been declining by approximately 0.01 percent every two weeks.
The New Regulation
The rule requires banks to give customers the option to choose whether they want overdraft protection on their ATM and debit cards. If they don’t choose overdraft protection, then any transaction using an ATM or debit card on an overdrawn account will be immediately denied, and banks won’t be able to collect overdraft fees. Leading up to the effective date of the new regulation, the interest rates on certificates of deposit dropped. Some say the interest rates dropped in the two months leading up to the new regulation going into effect. According to Market Rates Insight, rates on a 48-month certificate of deposit dropped by 0.13 percent, a 30-month dropped by 0.05 percent, and a 24-month dropped by 0.02 percent since the rule went into effect. While lower interest rates on certificates of deposit may not last, as the Federal Reserve increases the Federal Funds Rate, the interest rates on certificates of deposit are soon to follow.
Future of Certificates of Deposit Rates
Analysts and financial experts expect the decline in rates on certificates of deposit to continue and to drop even lower. Dan Geller, executive vice president at Market Rates Insight says, “I would say that for the remainder of this year, the probability of a continuing decline in the national average rate for deposits is very high.” The chief executive of Equity Bank, Brad Elliott, says while he hasn’t noticed local banks reacting by decreasing the interest rates on certificates of deposit, he has noticed this trend in national banks. Brad Elliott also mentions that Equity Bank has not reacted to the new overdraft rule by lowering the interest rates it pays on certificates of deposit.
Certificates of Deposit Rates Go Up
On the other side of the spectrum are those experts who predict that the new regulation will cause the interest rates on certificates of deposit to increase. An anonymous bank representative shares that “[t]he new regulation that has come out is going to force banks to drop what we can pay customers because we have to make up for the added expense of regulation.” Banks expect to experience higher expenses with the regulation because it affects the ability of the bank to charge overdraft fees on debit card and ATM transactions.
related visualeconomic articles
