January 2011 E-News Bulletin
January 2011 eBulletin
Welcome to the Franklin Financial Network January 2011 eBulletin!
"Do you love your bank?" A recent ad for one of the emerging internet banks poses this question. The idea behind this ad is that interest rates on deposit accounts are very low and depositors can find the best interest rates with this internet bank.
Nationwide, many bank customers are experiencing "sticker shock" as they renew or purchase a new Certificate of Deposit (CD). CD rates have been low for several years and lately have fallen to even lower levels. For savers and investors this is frustrating.
Conceptually, two factors determine bank deposit rates:
- Alternative rates such as the rates on Treasury securities or corporate bonds
- A bank’s need for funds to lend
Over the last two years, Treasury rates have fallen to historic low levels. The 90-day Treasury bill rate is below 0.15% and the one-year Treasury bond rate is around 0.25%. These low levels are unprecedented. The Federal Reserve Bank, which has control of short-term rates, has stated that interest rates will remain low until the economy, especially the housing market, improves.
While long-term interest rates have climbed over the last several months, bank deposit rates have not followed because bank rates are short-term in maturity.
While market rates have been low for several years, bank CD rates have dropped even lower. Why? The answer is simple: most banks are not lending and do not need CD funds. It’s the simple economic law of supply and demand: price (the interest rate) falls when supply outpaces demand.
Franklin Synergy Bank is not like most banks: we are making loans. In 2010, our loans increased nearly 20% and we originated over $140 million of residential mortgage loans.
An example of our commitment to lending is our innovative SmartLoan
program. This new product is designed to meet the specific needs of customers seeking to build a new home, combining a construction loan, a mortgage loan, and a checking account. The interest rate and fees on a SmartLoan
are attractive as the bank’s cost savings are passed to the customer. Contact any of our experienced bankers to obtain additional information.