Branches Versus Interest Rates

by. Steve Topper

Is it possible that in today’s economy, banks and credit unions are making a trade-off between branches and the rates of interest paid on deposit products?

It’s possible but not conclusive.

I do believe that one of the ways today’s financial institutions are supporting their expensive branches is by minimizing the amount of money paid savers at all levels from the basic regular savings account to the high-balance Certificates of Deposit.

It’s a side-benefit of the Federal Reserve’s near zero interest rate policy aimed at stimulating purchasing at the expense of saving for the future.  It’s a giant gift to the nation’s banks and credit unions – big and small.

I was reminded of my belief last Friday as I encountered the following full-page magazine ad from the marketing folks at Ally Bank.

As an online-only bank, Ally avoids the brutal costs of managing and maintaining a network of brick and mortar branches.

It’s likely this helps enable the bank to offer an 84-basis points rate of interest for a basic savings account.

Ally can afford to pay higher interest because it doesn’t have some of these weighing down its cost structure.

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