Why are CD yields as low as savings account rates?
This is presuming that you are in the US, and you are looking at the CDs offered by very large banks such as Chase.
Chase currently offers (as of this writing) a 0.02% APY on most 12-month or shorter CDs, and a 0.01% APY on savings accounts.
These are simply not competitive rates. Ally offers CDs starting at 2.1% APY, and savings accounts at 1.75% APY.
Why are Chase's rates so comparatively low? Many possibilities:
- The large bank may have more money on hand than it can lend out. Having additional money deposited at that point does not actually generate additional revenue.
- Similarly, the large bank may feel that paying out the higher interest rate would cost more than the value of the business brought in.
- The large bank can count on business through its physical location from people who are simply unaware of other, higher offerings.
- The large bank can count on people to deposit money for reasons other than the interest rate (to ensure a minimum balance for private banking services, for instance, to have all of their accounts in one place, etc).
Is a 2.5% compared to a market average of 0.02% too good to be true? How could this bank possibly offer 10 times what the market is offering?
It is not too good to be true; there are many online banks that offer comparative rates for savings and CDs. The large banks are essentially playing in a different market with different goals.