Not all states are equal – at least when it comes to CD rates. Those are the findings from an analysis run by BestCashCow.com on its database of bank rates. The site analyzed its database of over 7,000 banks and 2,000,000 product rates to determine the best states to park your cash. Among the findings:

• Eight out of the top twelve states with the highest one year CD rate averages were from the central part of the United States.
• Five out of the top twelve states with the highest five year CD rate averages were from the central part of the United States.

When it comes to bank rates, the more expensive states weren’t even in the running. Financial powerhouse New York was thirty-sixth in rank for one year CDs and forty-second on the list for five year CDs while California was thirty-eight for one year CD averages and twenty-second for five year CD rates.

The rate discrepancy between the heartland the coasts may reflect several factors:

• The heartland states tend to have a higher percentage of small, community based banks that offer more competitive rates. For example, Oklahoma, the state with the most competitive 1 year CD rates has 15,828 people per small and medium-sized bank while New York 133,511 people per small and medium-sized bank.
• The heartland states are benefiting from a boom in the agricultural/commodity markets that has stimulated the economy and may have resulted in regionally higher rates. Eight of the top eleven states with the highest average rates are also in the top ten in terms of agriculture as a percentage of their economy. Soaring commodity prices may also be creating higher CD rates for consumers in those states.

It’s not just average rates that are higher. The highest rate in the country right now is 3.24% APY from West Plains Bank in Ainsworth, NE. As a comparison, the highest rate in New York State is 3.04% APY.

Below are the CD Rate Averages:

One Year CD Rate Averages

Five-year CD Averages

Banks are wiggling their way into consumer pockets in any way they can. Take money out of an ATM one gets charged (sometimes both by the releasing bank and one’s own bank.) Miss an average minimum balance or order a statement or cancel a check, one often has to pay. But, the most devastating fees are often the overdraft fees.

To maximize overdraft fees, banks have the keen rule to process the largest transaction first and work backwards. So, one may over draft numerous times with outstanding checks. Overdraft protection must be asked by the consumer and often requires maintenance of another account of additional fees so fewer consumers have it. The median overdraft fee is $27 while the average is $17. However, on Monday 4/5/2011 Citi Bank announced a reversal of the largest to smallest policy effective 7/25/2011.

To illustrate the difference in effect, suppose one has $1,250 in their account. Now suppose that consumer writes a rent check for $1,200, cable payment check of $75, cell phone check for $110 and electric utility check of $90. Granted that consumer should have been aware that they were beyond their means, but in this newer hand to mouth economy, these things happen.

With the above example, banks would usually do the following (if all checks were cashed on the same day):

Customary bank with old rule:

Beginning Balance: $1,250

Less: $1,200

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Subtotal 1: $50

Less: $110 (overdraft)

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Subtotal 2: -$60

Less: $90 (overdraft)

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Subtotal 3: -$150

Less: $75 (overdraft)

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Total: -$225

Note that there are three overdrafts, resulting in an average extra cost to the consumer of $51.

Using the same scenario, but with the smallest to largest transaction that Citi will begin implementing we see the situation much more manageable.

Beginning Balance: $1,250

Less: $75

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Subtotal 1: $1,125

Less: $90

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Subtotal 2: $1,035

Less: $110

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Subtotal 3: $925

Less: $1,200 (overdraft)

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Total: -$275

The consumer still has a negative balance of $225, but was only subjected to one overdraft – costing $17, not 3 costing $51.

The rationale of the banks is that the larger transactions are more important (i.e. mortgage payments, insurance payments, etc.) At this time Citi is a forerunner, with no one chasing them. Bank of America and Chase, at this time have no plans to change their protocol. This is a small victory, but is proving that elephants can learn how to dance.

This article from earlier this year discussed giftsforbanking, a CD offering that provides presents in lieu of a higher CD yield, and Bankdirect, a Texas-based bank that offers American Airlines miles in lieu of interest on savings accounts. The article concluded that while American Airlines miles may be a good substitute for cash interest in the current environment, the gifts on giftsforbanking won’t make up for your lost interest over the life of the CD.

Those people who live in areas where JP Morgan Chase has a heavy presence have become accustomed to receiving offers in the mail to earn between $100 and $150 in cash for opening a Chase savings or checking account. These offers ordinarily require maintaining a $10,000 balance and maintaining it for over 6 months. Since $10,000 isn’t going to earn $150 in interest this year, the opportunity to make that kind of money in six months may be attractive if you are willing to spend a few minutes sitting with a Chase banker in a branch. Find the closest JP Morgan Chase branch to where you live.

Likewise, HSBC is offering new Premier account holders who deposit $100,000 a $500 bonus. That’s a 0.5% return just from the bonus. Find the closest HSBC branch to where you live.

Online brokerages have also gotten into the act too, and have now become perhaps the most aggressive gift-givers. This author has received Apple and Home Depot gift cards, as well as United frequent flier miles and Starwood points, for moving equities and cash to TD Ameritrade.

TD Ameritrade recently caught my attention and clearly raised the promotion bar by sending out a glossy brochure offering free 8-day cruises for two to Alaska, the Mediterranean or the Caribbean. My own excitement dissipated when I reached page 4 and discovered that the Alaska cruise requires a $5 million cash or equity deposit, the Mediterranean cruise $2 million and the Caribbean cruise $1 million.

Earlier TD Ameritrade promotions requiring smaller deposits have worked well for me. While I don’t have the type of assets sitting around to take advantage of the cruise promotions, this glossy brochure did strike me as a very unique effort by a discount brokerage aimed at winning higher net worth investors from the major non-discount investment houses.

Nevertheless, I would warn any higher net worth investor that these promotions only work if you are entirely self-directed and are using the account mainly as place to park cash or securities. Particularly, in my own experience, TD Ameritrade has proven to be technically challenged – their execution system often malfunctions and their website is often unavailable. High net worth investors may rue the day that they jumped on a cruise after spending 15 minutes on hold trying to figure out whether they are in or out of a trade.