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Why the Banks Are Screwing You

NEW YORK ( TheStreet) -- Investors who have been putting aside cash to invest in certificates of deposit should realize they're not benefiting from the recent surge in longer-term Treasury yields that have pushed the 10-year note to its highest level since 2011.

While the yield on the 10-year Treasury note has surged to 2.6% from a May 9 yield of 1.812%, the national average rate for a 5-year certificate of deposit remains virtually unchanged at 0.8%, according to RateWatch, TheStreet's banking data and analytics service.

What gives?

Myriad factors influence the lack of better rates in CDs, and investors can look to the Federal Reserve and banks for answers.

A look at the recent earnings of Wells Fargo (WFC - Get Report) is a good primer for how Fed policy is driving banks' decisions in offering yields to savers.

Put simply, banks flush with new deposits such as Wells Fargo aren't likely to offer savers a better rate of return on CDs unless they are forced to. Right now, surging inflows of deposits and the bank's below-average CD rates indicate Wells Fargo doesn't need to increase yields. Banks that sit on a comfortable amount of deposits have less incentive to attract more depositors through higher CD rates.

In fact, Wells Fargo over the past two quarters has seen its earnings suffer from new deposits. Wells Fargo earns a spread in what it pays to depositors and what the bank earns through its various lending businesses. That spread, called net interest margin, has fallen to record lows in 2013 as higher-yielding loans granted prior to the Fed's easing policies run off Wells Fargo's balance sheet.

Low rates offered on CDs and a recent rise in the yields of bonds, mortgages and Treasuries that Wells Fargo characteristically holds on its balance sheet are a saving grace for the bank's profit margins that it likely won't soon choose to cede.

"When you look at how much quicker to react mortgage rates have been to CD rates, you have to conclude that banks are protecting themselves and protecting their profit margins," said Richard Barrington, senior financial analyst at MoneyRates.com.

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