See more articles from Financial Services Review The market for retail certificates of deposit: Explaining interest rates

Abstract

Retail certificates of deposit provide financial institutions with funds and depositors with income. Because interest rates and terms on deposits vary, understanding the reasons for the variation should help participants in this market make better decisions. This study explores interest rates and terms on deposit offerings from banks and thrifts while controlling for risk, service, and demographics. Results suggest that less than perfect market efficiency exists to the extent that institutions paying lower interest rates without offering other benefits may still obtain deposits, and depositors may improve returns and receive other benefits by comparing rates. © 2008 Academy of ...