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#2283953 - 04/28/23 08:27 PM Customer requests Lower CD Rate
Comply101 Offline
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Joined: Nov 2013
Posts: 26
I had a question posed to me and I don't have a good feeling about it but I wanted some other opinions. We had a customer request that we open a CD with us paying a lower interest rate than we are currently paying. (For example, lets say we are paying 1.25% but they are asking us to pay them 0.5%.) They are doing this because they want to apply for a CD secured loan in the near future. Our rates on these are CD interest rate +2%. Do you see an issue with this?

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#2283954 - 04/28/23 08:33 PM Re: Customer requests Lower CD Rate Comply101
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,224
Galveston, TX
Just depends, if you are willing to do it for one, you would have to do it for all.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2283962 - 04/28/23 10:19 PM Re: Customer requests Lower CD Rate Comply101
Skittles Offline
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Skittles
Joined: Sep 2002
Posts: 13,965
TN
Won’t the customer be paying 2% no matter what they’re earning?
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#2283966 - 04/29/23 11:36 AM Re: Customer requests Lower CD Rate Comply101
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,224
Galveston, TX
Well, they have to pay the difference, yes. However, if the going CD rate is 4% on a one-year CD and you give them a CD at 1%, they only have to claim the 1% instead of the 4% as interest income. So, it amounts to preferential treatment.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2283969 - 04/29/23 02:37 PM Re: Customer requests Lower CD Rate Comply101
Andy_Z Offline
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Andy_Z
Joined: Oct 2000
Posts: 27,748
On the Net
The bank's spread remains at 2% and your interest expense is lower meaning the account is less costly while the admin side remains the same. It seems to me the bank does better overall. That interest expense is likely negligible in the big picture. The fact that the depositor reports less income is only because they earned less income. If it's preferential it's reversed preferential, if you will.

I don't know what religion it was, but many years ago we had a group of depositors moving funds from CDs and savings to DDA because they were told based on their religion they should not earn interest on deposits. Personally I thought that must've been an underserved group and maybe we'd get CRA credit for banking them. smile
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