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Banks Are Rolling Out New Incentives to Win Business
Who knew checking and savings accounts were so sexy?
Historically low interest rates, tough new capital requirements and heightened competition from brokerage firms are prompting banks to dangle juicy incentives to a group of customers that not long ago were considered wallflowers: depositors.
The nation's top 15 banks by deposits are promoting high-interest savings accounts aimed at rewarding customers for opening a checking account. The 10 biggest banks also are offering borrowers cash back for opening a new checking account. And the 15 biggest banks are embracing "relationship products," throwing in rewards like high rates on certificates of deposit, mortgage discounts and investment advice to people who keep multiple accounts under one roof.
Even private banks, which typically cater to customers with several million dollars in investible assets, are joining the fray. They aren't sweetening their incentives, but Bank of America Corp.'s U.S. Trust and a few others are lowering their asset thresholds, making their services -- which often include estate planning, investment research and perks like avoiding lines in bank branches -- available to more customers.
Banks "need more cash on hand," says Dan Geller, executive vice president at Market Rates Insight Inc., a San Anselmo, Calif., firm that tracks bank interest-rate data, "so they are intent on bringing in warm bodies."
The current low-interest-rate environment is adding to banks' sense of urgency. By bringing in customers now, banks are setting themselves up to profit when interest rates rise, by collecting the difference between the interest paid to depositors and the money they rake in from loans.
"Rates on deposits typically don't move up as quickly as overall interest rates," says Mark Fitzgibbon, director of research at investment bank Sandler O'Neill & Partners LP. "So banks are in a prime position to recruit now and profit later."
One way to attract deposits is through relationship products: deals that offer better terms to customers with multiple accounts at the same institution. As of January these accounted for 31% of all the products banks offer, up from 28% last January, according to Market Rates Insight. The average interest rate that banks paid on relationship accounts was 0.16 percentage point above the rate on a basic account not tied to other products, up from 0.1 point a year earlier.
Savings accounts are hot, too. Banks mailed 75.2 million more savings-account offers in the fourth quarter of 2010 than in the same period a year earlier, a 22% rise, according to market-research firm Mintel Comperemedia. Banks also are boosting interest rates: The average rate on savings accounts tied to checking accounts was 0.25 percentage point higher last month than in January 2010, according to Market Rates Insight.
Yet banks increasingly are viewing checking accounts as the Holy Grail, say analysts. That is because those accounts are the "stickiest," meaning customers are less likely to flee to a rival. Banks' goal: to pry those customers loose now and keep them for the long term.
In 2010, the average size of cash rewards for new checking customers increased by 16% from a year earlier to roughly $138, according to data from Mintel. Capital One Financial Corp., for one, spent 14% more to promote its checking program on television and radio spots in the second half of 2010 than in the first half of the year, according to media research company VMS Inc.
For consumers, the latest round of wooing is presenting more opportunities to score competitive rates. "It's a great time to be a banking customer, especially if you are willing to consolidate your business in a single bank," Mr. Geller says.
But there are drawbacks. It is often a hassle to switch checking accounts, which involves everything from ordering new checks to setting up new automatic bill payments. And there always is the risk that banks will change terms or hit customers with unforeseen fees later.
Still, Keith Halter says he's glad he made the move. The Vincennes, Ind., sales manager opened a checking account at J.P. Morgan Chase & Co.'s Chase Bank in November to get a $100 bonus. Then, to avoid any other monthly fees, he set up a direct deposit from his checking account with San Antonio-based USAA, which he still maintains.
The Chase offer "is free money," he says, adding that it took him only a few hours to set up the deal. He does, however, devote some time to keeping up with the fine print of the agreement to avoid any fees.
A $100 cash reward might not be enough to persuade many well-heeled borrowers to change banks. But the inducements could help tip the scales for anyone who already is considering a move.
"The rate is fabulous"
Like Chase, PNC Financial Services Group Inc.'s PNC Bank, based in Pittsburgh, in January began offering a $100 reward for customers who open a checking account and set up direct deposit. Buffalo, N.Y.-based M&T Bank Corp. last June launched a $150 cash-back offer to customers who open a checking account and make at least 10 debit-card withdrawals each month.
HSBC Holdings PLC's HSBC Bank USA is going even further. In an update of the old-fashioned toaster giveaway, the U.K. bank since January has been offering a $500 Apple or Amazon gift card to U.S. customers who open an HSBC Premier checking account with $100,000 or more. People who deposit $50,000 to $99,999 get an iPod Touch or a $200 Amazon gift card.
For wealthier people, higher interest rates on deposits are potentially more lucrative than upfront cash incentives. Customers can earn almost a full percentage point more on CDs and money-market accounts for keeping more than one account with a bank, according to Mr. Geller. That translates to an extra $1,000 on a $100,000 CD.
Monica Chandra, a marketing executive in Boston, says she had grown tired of the fees her "big, national bank" had been charging, and recently moved her business to Leader Bank.
Since September the Arlington, Mass.-based bank has offered a 1.25% interest rate on a savings account linked with a checking account -- much higher than the national average of 0.09%, according to consumer-education website Bankrate.com. "The interest rate is fabulous," she says.
In January, Chase launched a deal paying 1% interest for 90 days to customers who deposit at least $25,000, up from its typical rate of 0.5%. And Citigroup Inc.'s Citibank in January launched an offer in which customers with a checking account and $25,000 or more in a savings account receive a cash bonus for three months on their savings equal to their interest payments, which vary by region but can reach up to 0.5%.
Meanwhile, U.S. Bancorp's U.S. Bank, based in Minneapolis, in January rolled out a new savings incentive for its checking customers. Those who set up a monthly transfer from a checking to a savings account get a $50 Visa gift card. Maintaining an average balance of $1,000 in the savings account for a year or more will win customers another $50 card. The two cards amount to a 10% return on a $1,000 savings account.
Banks also are trying to beat back brokerage firms and online banks that are increasingly going after bank deposits. In the past several years, Charles Schwab Corp., Fidelity Investments, E*Trade Financial Corp. and several others have rolled out checking products, most of which pay interest of 0.1% to 0.25%. Most banks, by contrast, pay zero, according to Bill Doyle, vice president at Forrester Research Inc., a Boston-based consulting company. A handful of online-only banks, such as EverBank Financial Corp.'s EverBank, ING Group NV's ING Direct and Ally Financial Inc.'s Ally Bank, are paying even higher rates -- 1% or more -- to attract checking customers.
Schwab, for one, plans to increase its marketing of checking products this year. Besides paying 0.25%, its accounts refund all automated teller machine fees. The San Francisco company views the products as ways for new customers to "toe-dip their way to investing," says Jonathan Craig, senior vice president of retail marketing at Schwab.
Fidelity, meanwhile, says it saw 30% growth in its MySmartCash checking accounts in 2010 from a year earlier, with overall balances up by 50%.
To fight back, Bank of America in January launched Merrill Edge, a program that offers investment-advisory services, brokerage accounts and electronic trading to the bank's customers while promising lower rates on mortgages and other products to borrowers with at least $50,000 in a Merrill Lynch brokerage account.
For example, the Charlotte, N.C., bank reduces the interest rate on jumbo mortgages by 0.25 percentage point for customers who keep $250,000 or more in total investments with the bank and brokerage firm.
A quarter-point savings on a $417,000, 30-year fixed-rate jumbo mortgage translates to more than $20,000 in savings over the life of the loan.
Private banks offer more robust versions of the brokerage-banking menu, including personalized tax strategies and investment advice. While most private banks aren't advertising low fees, they increasingly are open to negotiation, says Bruce Holley, a senior partner with the Boston Consulting Group. U.S. Trust, for example, typically has clients from $5 million and up, but says it is willing to bend on its asset requirements.
There are advantages to keeping all of your money under one roof. Having a consolidated view of all your accounts "means one less site to check and a more coherent view of your financial picture," says Forrester's Mr. Doyle. Another plus: "If you've got a problem, you get better service."
Of course, while the incentives might seem alluring, customers should weigh them carefully. For instance, the Chase, PNC and M&T offers come with minimum-monthly-balance and usage requirements that can trigger fees.
Some seemingly attractive deals might merely be teasers that banks remove later, cautions Aaron Patzer, CEO of Mint.com, a banking site. Borrowers can get a better rate if they shop around for longer-term savings offers, he says.
It also isn't easy to plow through the thousands of offers being pitched by the nation's more than 8,000 lenders at any given time. But there are some Internet tools that can help. Websites like Bankrate.com, BillShrink.com and MoneyAisle.com track rates on CDs, credit cards and savings and checking accounts.
BillShrink.com and Mint.com can also churn out customized offers based on such criteria as how much you keep in an account and your savings goals.
Consumers should ask a few simple questions before finalizing a deal, say financial advisers. First, they should find out if monthly maintenance fees are set to kick in later in the life of the account. Next, they should ask about any other stipulations, such as balance minimums or other requirements.
Just remember, banks view checking accounts "like a moat you build around customers," says Greg McBride, a senior financial analyst at Bankrate.com. So navigate the waters carefully.
(Source: The Wall Street Journal, 02/12/11)
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