The uncomfortable truth is that banks are not obligated to act in customers’ best interests.

After spending over 20 years working for a top 5 US bank, I became very familiar with the deposit pricing strategies of large banks. Generally, both large and regional banks follow similar deposit strategies—rarely offering the best interest rates to the majority of their customers.

Why Do Banks Hold Back on Rates?

There are a few key reasons why banks don’t offer their best rates to most clients:

1. Product-Driven Strategy: Traditional banks were built for convenience, emphasizing branch networks and product variety rather than competing on interest rates. The assumption was that convenience, not rates, would keep customers loyal.

2. Operational Costs: Maintaining extensive branch networks and a wide range of products is costly, leading banks to believe they can’t afford to offer the best rates to everyone.

3. Market Power: Historically, many U.S. cities had a small number of banks dominating the market, which gave these banks less incentive to offer competitive rates. Despite the rise of fintechs and branchless banking, this mindset still lingers.

Who Gets the Best Rates?

Banks typically reserve the highest deposit interest rates for select groups, such as large corporations with hundreds of millions in deposits or ultra-high-net-worth individuals invited to private banking services. While it may seem logical to reward high-value clients, this selective strategy is ultimately about maximizing profits by offering lower rates to everyone else.

Moreover, banks often communicate selectively about rates. Relationship managers don’t have a fiduciary responsibility to the customer—they represent the bank's interests, not yours. This leads to a strategy where the bank offers just enough interest to keep customers from leaving. If you ask for a better rate, they might give you a slight bump, but rarely the best available rate.

The Legacy of Product Differentiation

Historically, product offerings like checking accounts, savings accounts, and CDs were regulated with respect to ability to pay interest, maximum monthly transactions, etc., with checking accounts not paying interest and CDs offering the highest returns. While those regulations have evolved, the product structure remains mostly the same—but now driven by pricing strategies, not regulations.

Today, banks can offer interest on checking accounts, and savings accounts have fewer transaction limits than before. Yet, banks still differentiate products based on interest rates in ways that prioritize their profit margins.

Deposit Pricing in Action

The chart below highlights the average rates paid by U.S. banks on various deposit types, including checking, savings, money market, and NOW accounts. This $13.8 trillion sample includes deposits from large corporations and wealthy individuals who receive market rates. The overall weighted average interest rate paid is 1.97%, skewed by high-value clients. In comparison, as of July 15, 2024, the average rates paid were just 0.08% for interest-bearing checking, 0.45% for savings accounts, and 0.66% for money market accounts.

What Can You Do?

1. Ask for Better Rates: Don’t hesitate to push back on your bank. Many relationship managers can offer non-standard rates or request approval for higher rates.

2. Explore Alternatives: If you’re tired of negotiating with your bank (or don’t want the hassle), consider signing up for a Robora Cash Account. We link and sync with 95% of U.S. bank accounts via Plaid, offering a high-yielding, FDIC-insured sweep account. You can keep your existing checking account for payments and earn 4.15% APY — higher than any rate offered by traditional banks.