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I have been thinking about something for a while now and maybe someone knows the answer...
Why is it that banks offer LOWER interest rates if you put larger sums of cash in their savings/CD accounts?
I see that smaller sums results in higher interest rates but higher amounts results in lower rates? Thanks... is it just greed on part of the banks? or is an intentional disincentive so that people put it into the stock markets?
Overhead? I am not sure what you mean... why does overhead cost 3-4% of your interest rates? Isn't that a bit "expensive"? Especially when there is a fuss on fees that cost more than 2% on mutual funds...
For instance, my bank (savings account) offers 6% for money UNDER $500 but if you have more than $500 than your interest rate is 0.50%... a difference of 5.5%!! And this is common wherever I look at regardless of bank/credit union... my checking accounts gets even worse... is 0.25% for anything over $500... I definitely think its a racket... borrow at 2% and loan at 6%, hah! I guess they have overhead and CEO salaries to contend with...
I honestly have never seen/noticed this. I have multiple checking/savings accounts and each one I have offers better interest on larger balances. I do prefer Credit Unions vs standard banks (and all my accounts are with CU's).
I definitely think its a racket... borrow at 2% and loan at 6%, hah! I guess they have overhead and CEO salaries to contend with...
If you think it's such an easy racket, open a bank and start raking in money hand-over-fist. I suspect that you will quickly learn how far from reality your simplistic perception of banking really is.
The rules on availability of deposits of deposits in savings and checking are different enough from MM & CD accounts that banks like to encourage folks NOT to put too much in the accounts that they essentially have to "keep the cash in a vault" (well not really, as in practice the cash is never all in one place, but you get the idea...).
The use of the "reverse graduated interest rates tiers" is a marketing gimmick -- the OP's bank wants to get more people to bank with them , but they want to limit the total amount of interest they will have to pay on the "immediate" availability type accounts.
Banking regulators have rules on availability of deposits to prevent crazy people from either saying "there is no money in the vault" as well as manage the fear of creating a run on the bank, and maintain stable reserves throughout the whole system.
Because the "higher rates, like 5%, for deposits up to $1000" are loss leaders to get people in the door. If they allow any amount to have that interest rate, it would basically cause the bank to go bankrupt.
When they allow graduated "tiers" of interest rates that max out after 100k or more in deposits, that is generally at a rate low enough that it's not really unprofitable for the bank. Although they may impose multi-million dollar limits for liquidity reasons.
Local Credit Union pays 3% on the first 25k and then 1% on any balance over the 25K
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