“Anna Molly” – Incubus.
I need to start doing this again – title posts coincidentally with a good song.

Anyways – a better title would be “When there is smoke, there is fire.”  I should have written about this a while ago: rates.

Who out here in this blogosphere, or anywhere mind you, shop a little for interest rates for your savings/money market/CD accounts (maybe even checking if you dig deep)?  I know you can pretty easily with bankrate.com.  I even knew a [[smart]] guy that would shop for higher rates constantly, and would always find a rate higher than his student loans in order to pay for the interest.  I wonder how he’s doing now…

Anyways, I wanted to write about how published rate offerings for different banks may suggest how they are fairing this tumultuous economy going on here.  Please direct yourself here for a second - it’s HSBC’s published rates, frequently changing.  Scroll down to the various CDs they offer, from 3 month duration up to 2 years.  

Anything pop out at you that’s a bit off?  It seems logical for higher rates for the longer term, as it’s considered more risky the longer you lock in your money in a CD, and the bank should pay for that.  The shorter the term, the more liquid it is, the lower the theoretical risk.  HSBC’s rates pretty much follows that, except for their 2 year term CD at 1.60%.  It’s below the 1 year at 2.00%.

This is a micro banking definition of an inverted yield curve.  A normal yield curve would have interest rates increase as the duration of the CD increases.  This represents the risk for reward theory mentioned a second ago. 

When looking at irregularities like HSBC’s rates, it can give you some insight to how the bank currently managing itself.  Looking at these rates, I would have the initial thought that HSBC doesn’t really need immediate, short term funding (shown with the very low rates for 3 & 4 month CDs), nor do they need much longer term funding (shown with the lower rate in the 2 year term).  Where the bank is willing to pay for money is the intermediate terms that they offer, the 1 year, 13 months and 15 months.  Perhaps they are having some difficulty gauging themselves through that 12 -18 month cycle, or maybe they are quite weak in that ‘bucket’ of time.  Whatever it is, they are willing to pay up for these terms for some reason.

When I’ve rate surfed in the past, I’ve noticed huge differences in immediate short-term (less that 6 months) rates versus long term.  These banks were begging for short term funding, perhaps couldn’t get it anywhere else (might have no one willing to lend to them).  Anomalies, for sure (hey! back to the song of the post!).  But should be taken into consideration while rate shopping for your money.

Why?  Well, if there is a huge discrepancy within their short term versus long term funding (i.e. 2% for 3 month CD versus 1% for 3 year…I wouldn’t think that’d be out there though, at least for the major banks), this screams “we need money! now!”

I want to drive home that if a bank overall is paying significantly higher rates compared to those around them during a time like this, it should be highly questioned.   I’d currently be wary of smaller, community banks doing this.  Their troubles are less publicized, and therefore issues may not be immediately apparent other than published rates to the general public (although you can pull up public FDIC call report filings -10Qs for banks- and dig in yourself if you’re so inclined).   It’s a decent gauge on how a bank is doing – to see what they are willing to pay for.

Granted, this may not apply in a better rate/economic environment.