Posted By: MarketingManiac
Wacky Teaser CD - 01/30/08 10:38 PM
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!
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!