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Banks keep deposit yields high, despite lower rates

 

The credit crunch has forced some banks to keep their deposit yields above average:

The credit crunch has hit the stock market and housing industry extremely hard. There is an underlying benefit for investors. To understand the underlying benefit, you need to understand how banks make money. Most banks make money on their "margins", simply defined as the rate at which they borrow money versus the rate at which they can lend money. Historically when the Federal Reserve lowers the fed funds rate, you see banks follow by lowering the rates they offer customers for their deposits. The anomaly in this market is that as the Fed has lowered the fed funds rate, some banks have actually increased the rates for their deposits (Countrywide, IndyMac). These institutions have taken these measures in an effort to try to bring in additional capital to offset their credit risk brought on by the credit crunch. The reduced margins will ultimately affect the profitability rates of the banks, but can benefit savvy investors.

1-8-2008 ? LoanNetwork.com

 

 

 

 

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