When Teasers Turn Into Trickery

Navigating the Fine Line Between Attraction and Deception

In the play, As You Like It, Rosalind makes the famous observation about courtship vs. commitment: “[m]en are April when they woo, December when they wed. Maids are May when they are maids, but the sky changes when they are wives.” The chances are low that Shakespeare had bank teaser promotions in mind when he penned this, but the comparison is apt. People entrust their hard-earned money to financial institutions with the expectation that these institutions will act in their best interests, safeguarding their assets and helping them achieve their financial goals.

Almost since the invention of the toaster, however, banks have offered awe-inspiring deposit rates that, in time, turn out to be not exactly what they appeared to be. These are known as teasers, and though their terms may be fully disclosed, we would argue they are trouble. Let’s add them to the list of banking practices that breed frustration and challenge trust.

Tease and Switch

Teaser rates, often employed by banks to attract new deposits, offer initially enticing interest rates or benefits that lure customers to bring new money to the bank. Let’s start with Certificates of Deposit (CDs). Banks can offer higher rates for CDs than other deposits because clients agree to keep the money deposited for a fixed period. In a teaser scenario, a bank might offer a high rate on a Certificate of Deposit (CD) for a limited time, only to renew it automatically at a below-market rate when its teaser timeframe expires.

Let’s be clear. This is not illegal. But is it right?

Regulations require banks to notify clients when their CDs mature and “roll over.” But regulations don’t mandate disclosure of the new interest rate; they only require the provision of a telephone number the client can use to call the bank and ask what the new rate will be. Many clients don’t call. And banks know this. This auto-renewal bait-and-switch tactic can leave clients feeling deceived and frustrated, as they realize after the fact that they are earning much less on their savings than initially anticipated.

The same applies to “demand” deposits, savings and checking accounts where clients are free to remove the money at any time. These, too, may carry an above-market teaser rate to attract new clients and funds, only to be later reduced to a below-market rate. Alternatively, a teaser rate may apply only to a portion of the deposit, with cash above a threshold receiving a lower rate, resulting in a “blended” rate that can be difficult to discern going in.

Caveat Emptor vs. Sharp Practice

One could argue that the dynamic nature of the financial landscape necessitates such practices. Banks operate in an environment characterized by fluctuating interest rates, liquidity requirements, market conditions and ongoing competitive pressures. Some may argue that the teaser rate is a necessary business strategy to adapt to changing circumstances and remain competitive in the market. Others may note that the lower the deposit rate, the more competitive the bank can be on loan rates. This is all true. However, while banks may have valid reasons for adjusting rates, the transparency with which they execute these changes with clients makes all the difference.

In an ideal world, financial institutions would place reciprocity with their clients first and serve as citadels of financial stewardship, embodying integrity, clarity and a commitment to client well-being. Clients would trust their banks to provide products not only suitable for – but also tailored to – their needs. However, the reality often falls short of this ideal, with banks prioritizing profits over long-term client relationships. A business that relies on apathy and low client involvement vs. providing real long-term value to clients may boost profitability in the short term. But it’s a shaky practice on which to build a trusted banking business and brand.

For our part, Fieldpoint will offer aggressive deposit rates to attract new client funds, but we do not believe in down-tiering to a lower “blended” rate on larger deposits, and when rates change, ours follow the market – up or down – wherever it takes us.

Effective. But Professional?

At their core, teaser rates are a game played by both banks and clients. The client overcomes the inertia inherent in “sticky” relationships with financial service providers by taking the bait of an offer that is quite literally “too good to be true,” at least over the longer term. The economics of teaser rates depend on the client not acting at the expiration of the teaser period. Is this the basis for a healthy professional relationship? You’re unlikely to jump at the chance for knee replacements simply because a surgeon puts the procedure on sale. Just as patients trust their doctors to recommend treatments that are medically necessary and beneficial, clients trust their banks to offer financial products that are in their best interests. Teaser rates can be seen as a betrayal of this trust.

Banks operate in a highly competitive environment, where margins are thin, and pressure to attract and retain customers is intense. In such a landscape, the temptation to resort to tactics like teaser rates may be strong, especially when faced with the need to meet quarterly quotas and shareholder expectations. Ethical banking requires a commitment to transparency, fairness and client-centricity. While it may be tempting for banks to prioritize short-term gains through teaser rates, such practices ultimately erode trust and damage the reputation of the institution.

One way to address the ethical concerns associated with teaser rates is to improve transparency and timeliness of communication. To my industry colleagues I suggest, don’t simply conform to the letter of the regulations, and don’t rely on disclosures that most won’t read. Instead, let’s just avoid teasers. Stay away from down-tiering and blended rates. Communicate transparently and in advance around CD maturities and rollover rates. Follow the market or beat it, but don’t play in the gray area of client apathy.

In other words, treat your clients like clients, not like customers.

About Fieldpoint Private

Fieldpoint Private is a boutique private banking firm established at the onset of the financial crisis by 31 individuals including former Chairmen and CEOs of some of the most well-known and successful financial and consumer firms in America. Their intent was not to craft a firm that would emulate the large, established institutions, but to serve as an alternative. Dedicated to meeting the comprehensive financial needs of highly successful individuals, families, businesses and institutions, Fieldpoint Private offers a powerful combination of private personal and commercial banking services directly and in partnership with our clients’ most trusted advisors. In 2021, Fieldpoint Private founded Fieldpoint Private Trust, increasing the breadth of capabilities available to serve our clients in both sole trustee and co-trustee capacity.

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Trust services offered through Fieldpoint Private Trust, LLC, a public trust company chartered in South Dakota by the South Dakota Division of Banking.