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Bank Slashes 5.5% One-Year CD Rate Shortly After Increase: Is It Sustainable?

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SLM Cuts 1-Year CD Rate After Recent Increase: What Does It Mean?

SLM, also known as Sallie Mae, has made a surprising move by reducing its 1-year certificate of deposit (CD) yield to 5.1%, just weeks after raising it to 5.5%. This 40-basis point decrease has caught the attention of investors and raises questions about the sustainability of high CD rates in the current market.

Competitive Landscape and Changing Rates

Sallie Mae's 5.5% rate had positioned it as the most generous among banks covered by Wells Fargo. However, Bread Financial has now taken that title by offering a 5.5% yield on their 1-year CD, with an even higher yield of 5.55% for customers who choose to renew their CDs. This shift indicates a competitive market where banks are vying to attract depositors with attractive rates.

Impact of Federal Reserve Policy

The Federal Reserve's tightening of monetary policy since March 2022 has prompted select banks to increase deposit rates. According to Morgan Stanley analyst Betsy Graseck, the average highest rate paid on CDs grew by 8 basis points in the last two weeks of August. Graseck predicts that deposit costs, measured by deposit betas, will continue to rise until the central bank eventually cuts rates. She suggests that deposit costs may not start declining until the middle of next year, assuming the Fed does not cut rates until early 2024.

Challenges for Banks

As banks face increased competition from Treasury bonds, money market funds, and other institutions offering higher yields on maturing CDs, they will experience pressure on deposit costs. This dynamic creates a challenging environment for banks to maintain attractive rates while managing profitability and retaining depositors. In conclusion, Sallie Mae's decision to lower its 1-year CD rate after a brief increase reflects the competitive nature of the market and the challenges banks face in sustaining high rates. The impact of Federal Reserve policy and increased competition from other financial instruments contribute to the uncertainty surrounding CD rates. Investors and depositors should closely monitor market trends and consider the broader economic landscape when making decisions about their investments.

Implications for New Businesses

The recent changes in CD rates, particularly Sallie Mae's unexpected rate cut, offer a valuable insight for new businesses, especially those in the financial sector.

Adapting to Market Dynamics

New businesses must be prepared to adapt quickly to market dynamics. Sallie Mae's rate cut, coming shortly after an increase, highlights the fluidity of the financial market and the need for businesses to remain flexible and responsive.
Competitive Positioning
The competition between Sallie Mae and Bread Financial for the highest CD rate underscores the importance of competitive positioning. New businesses must understand their market positioning and be ready to adjust their strategies to maintain a competitive edge.


In conclusion, the fluctuating CD rates reflect the complexities of the financial market and the challenges new businesses may face. The ability to adapt to market changes, understand competitive positioning, and make strategic decisions is crucial for new businesses. As the financial landscape continues to evolve, new businesses must stay informed and be prepared to navigate these changes to ensure their sustainability and success.
Story First Published at: https://www.cnbc.com/2023/09/01/this-bank-cut-its-5point5percent-one-year-cd-rate-just-weeks-after-hiking.html
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