Business Shows no Interest in Interest

     It is a little known provision of the Dodd-Frank financial reform that passed last year but businesses can now for the first time since the 30s get interest on large checking accounts. This is something businesses have wanted for a long time. Yet they are not exactly snatching them up right now. Why is this?

    A couple of reasons. For one thing while many banks are taking the new opportunity and offering the new accounts most that are aren't advertising it. JP Morgan, Wells Fargo, and Citigroup all now offer interest generating accounts but aren't advertising it. Bank of America on the other hand isn't offering it at all. One of the few large banks that is widely promoting the interest bearing business checking accounts is Capital One who is offering an account specifically targeted at small businesses.

    It's a question of yes we now let you gain interest on your account but we still hope you don't know it. Evidently they fear that more customers who would have opened accounts anyway will now grab the interest accounts than new customers who come to the bank specifically because of the new accounts.

    Then again many businesses prefer to find a bank that will make a deal with them to reduce or eliminate transaction fees(Of course retail customers, that would be us, aren't in the position to negotiate individual deals with banks).

    Certainly right now if you have a choice between an account that gains interest and one with less or no fees it's a no-brainer to choose the latter. The reason comes back to the reason so few businesses have shown any interest in interest;    With interest rates at historic lows there is very little interest to be had. There is little interest in interest because: there is no interest; this is beginning to sound like a Jerry Seinfeld bit!

    Maybe at some time in the future it will be a more attractive deal again though it's hard to imagine when. After all Bernanke has already said they will stay at or near 0 till 2013 to which I should add at least! If the economy doesn't turn around it could be here a lot longer. Japan lowered their rate to near 0 in the 90s during their malaise and as they've never come out of it they have never had occasion to raise rates.

    Still it could change. No one realized it back in 1981 but if you jumped on a 30 year bond then you hit the jackpot. This year these bonds come due and they have paid over 15% interest a year. Comparably bonds today offer a 2% interest rate and yet they're being snatched up on safety.