Care for a little salt on that wound?
One bank in New York is now adding fees to their deposit products (which already come with record low interest rates). The Bank of New York Melon Corp. said late last week that they will begin adding fees to customers who hold over $50 million in deposits with them.
So ok – at least they aren’t nickel and diming regular consumers looking to snag bank CD’s with FDIC insurance – but it still stings to the pension fund and money market fund holders looking for a safe place to park their clients’ cash. And, in our opinion, it sets a frightening precedent in an already unstable economic environment.
Why has the Bank of New York Melon Corp decided to go this route?
“The bank said it has seen such a large increase in deposits over the last month that it will charge a 0.13 percent fee to clients with “extraordinary high deposit levels.” Bank of New York Mellon, which has $23.6 trillion in client assets under its custody, said customers have moved money to cash as a safe haven in the past month as investments like stocks and bonds have become increasingly volatile.”
In a normal market, banks pay interest rates to consumers for depositing money with them. However, with the combination of short term rates at close to zero interest and an increase in FDIC insurance premiums, banks can get dinged for holding large amounts of cash on their balance sheet. Because deposits can get withdrawn at anytime (even with a penalty imposed for early withdrawal) they are considered liabilities. And when liabilities go up, banks must fork over more cash for FDIC insurance.
Check out some historical CD rates from New York banks in our archives.
Read more about the decision by New York Melon Corp here.