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#896805 - 01/30/08 10:38 PM Wacky Teaser CD
MarketingManiac Offline
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Joined: Feb 2006
Posts: 9
I'm calling it wacky because I haven't seen this anywhere in my research, but it's something we want to consider.

What: A "Reverse" Rising-Rate CD

Why: To quickly attract long-term money in a falling rate environment, but to maintain a relatively low cost of funds.

Idea: Take a long-term CD and divide it into equal rate periods. Offer an above-market rate for the first period - THE TEASER - and gradually lower the rate to an average market rate. This would either be done gradually or all at once during the first adjustment.

Example 1: Offer a two year CD and guarantee a rate of 5.00% for the first 6 months, then drop it 50 bps for months 7 - 12, drop it 25 bps for months 13 - 18, and drop it another 25 bps for months 19 - 24, ending up at a rate of 4.00% for the last period.

OR, Example 2: Offer a two year CD and guarantee a rate of 5.00% for the 6 months, and then drop it 100 bps to 4.00 for the remaining 18 months.

I hope I made this idea clear. Obviously the APY will be lower than the base rate, which may provoke some market apprehension. But long money is becoming the "IN" thing again, and by guarateeing that final rates will be still be market-friendly, it just may work.

Any comments, thoughts, experiences??? Thank you!
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#896819 - 01/30/08 10:57 PM Re: Wacky Teaser CD MarketingManiac
#Just Jay Offline
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#Just Jay
Joined: Oct 2006
Posts: 14,390
My intitial thought: Now that customers are seeing rates drop, I would be sceptical that many would gravitate towards a longer term right now, as they will want to be ready and liquid to "pounce" when those rates jump back up. We have trained them too well in the last few years to take anything longer than six months or a year.

I think it will be a tough sell to guarantee a diminshing rate over the long term. It actually isn't a bad concept and I do not think it is a bad product concerning what is going on, or may go on in the near future, but hard for a customer to walk away knowing they just invested in something guaranteed to do down in return.

And even at 4 and 5% as mentioned above, you may be paying too much for that money in the long run, and then both you and the customer feel you got a bum deal in the end.
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#896905 - 01/31/08 02:21 AM Re: Wacky Teaser CD #Just Jay
rlcarey Offline
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Joined: Jul 2001
Posts: 77,548
Galveston, TX
You need to read the advertising section of Reg DD:

2. Stepped-rate accounts. An advertisement that states an interest rate for a stepped-rate account must state all the interest rates and the time period that each rate is in effect.
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