It’s a question many organizations ask, and the honest answer is that it depends. That sounds like a dodge. It isn’t.
A rate is only one part of the deposit management solution. Once a balance passes $250,000 at a single bank, it is also no longer the only thing at stake.
The right question is not “what is the highest rate I can get?” It is “what is this cash for, and what am I giving up to earn more on it?”
| Key Takeaways |
| – There is no single fair rate on deposits over $250,000. It depends on liquidity needs, the institution, the relationship and the services involved. |
| – Published national averages are a reference point, not a benchmark. |
| – Above $250,000 at one bank, a higher rate can come with less protection. Rate and safety should be evaluated together. |
Why Isn’t There One Fair Rate?
Banks price large deposits based on what the money is worth to them. That depends on how long they expect to keep it, what it would cost to replace it, and whether it comes with a broader relationship. The same balance can be worth more to one bank than another.
The FDIC publishes national deposit rates every month, and they are a useful starting point. They are not a benchmark for a seven-figure balance. The national rate is weighted by each institution’s share of domestic deposits, so the largest banks carry the most weight. Money market and CD rates in that data are averaged from the $10,000 and $100,000 product tiers. In plain language, the published average tells you what the market pays on a typical account, not what your organization’s cash could earn.[1]
What Factors Shape a Fair Rate?
Liquidity needs
Money you need Thursday behaves differently than money you won’t touch for two years. Operating cash needs daily access, so it typically earns less. Reserves and funds with a known timeline can often go into CDs or other term deposits that pay more in exchange for less flexibility. Sort cash into those buckets before comparing rates.
Institution type
National, regional and community banks and credit unions price deposits differently. Banks that already hold more deposits than they can lend have less reason to pay up. Community banks that lend locally often place a higher value on stable deposits, and their pricing can reflect it.
Relationship value
A bank that holds your operating accounts, credit line and payroll may price the whole relationship better. The reverse is also true. A generous rate can be tied to minimum balances, lockups, or a loan requirement.
Available services
Many business accounts earn an earnings credit rate (ECR) in place of, or alongside, interest. That credit offsets treasury management fees for things like ACH, wires and fraud protection. A lower stated yield with a meaningful fee offset can be worth more than a higher rate with full fees.
Protection
This is where large balances change the math.
What Does the Highest Rate Cost You?
A rate is a return on your cash. Insurance is protection of the cash itself. Above $250,000, those two can pull in opposite directions.
The standard FDIC insurance amount is $250,000 per depositor, per insured bank, per ownership category. A corporation, nonprofit or association is insured up to $250,000 per entity at each bank, no matter how many accounts it opens there. Every dollar beyond that is exposed if the bank fails.[2][3]
An extra quarter point on $5 million looks attractive on a spreadsheet. It is a reasonable trade. It is also one that stops looking reasonable if the bank on the other side runs into trouble.
A rate far above market deserves a second look. Some banks pay up to grow. Some pay up because they need funding. The FDIC generally restricts banks that are less than well capitalized from offering rates that significantly exceed their market. Know which kind of bank you are dealing with.
There are ways to keep both. Spreading deposits across multiple insured banks, using deposit placement programs that may allow balances to be eligible for full coverage, and collateralizing public funds can protect large balances while they still earn a competitive return.
How Should You Evaluate a Rate Offer?
Before accepting or renewing a rate, ask:
- What is this cash for, and when will we need it?
- How much of this balance is insured, and how much is not?
- What fees does the account carry, and does an earnings credit offset them?
- Are there minimum balances, lockups, or early withdrawal penalties?
- Is the rate fixed, tiered, or adjustable at the bank’s discretion?
- How does it compare to what similar institutions are paying?
- Does this bank put deposits to work in our community?
So, What Is a Fair Rate?
A fair rate pays a competitive return for how the money will be used, on deposits you know are protected, at institutions you are comfortable holding them with.
At Ampersand, we believe deposits should be protected, should earn a competitive return, and should flow back to the community banks that lend locally. Those goals are not in conflict. With the right structure, most organizations don’t have to pick one.
The highest rate is easy to find. The right one takes a little more work. It is usually worth it.
Wondering whether you’re earning a fair rate on balances over $250,000? Ampersand can help you weigh what your cash earns against how well it’s protected. Let’s Talk Cash.
This article is for informational purposes only and does not constitute legal, tax or investment advice. Ampersand is not a bank. Deposits are placed at participating institutions and are subject to applicable limits, aggregation rules, and program requirements. Deposit insurance coverage depends on specific facts and account titling. For complete details, visit FDIC.gov or contact the FDIC at 1-877-ASK-FDIC.
[1] FDIC, “National Rates and Rate Caps”: https://www.fdic.gov/national-rates-and-rate-caps
[2] FDIC, “Understanding Deposit Insurance”: https://www.fdic.gov/resources/deposit-insurance/understanding-deposit-insurance
[3] 12 CFR Part 330, Deposit Insurance Coverage: https://www.ecfr.gov/current/title-12/chapter-III/subchapter-B/part-330