Online Deposit Accounts

Asaf Buchner | May 22, 2006, 10:19 AM

With short interest rates at their highest levels since 2001, consumers, banks and the press pay more attention to the yields offered on savings accounts, in particular on new online only accounts. The NYT covered it two weeks ago [TimeSelect] and the Washington Post discussed it yesterday. I wanted to draw our clients’ attention to a report that I published about the topic a few weeks ago. One of the questions that I was trying to answer was whether banks use high rates as a bait to attract new customers. It is probably the case for those institutions offering high-interest accounts. In fact, at the Post’s article Citi’s Catherine Palmieri speaks about cross-selling home-equity loans to these customers. However, I spoke to two top-ten US banks who are not offering high rates or special Internet only acconts. Their approach was that with the current narrow spreads they could not compete on rates. Rather, they compete on their comprehensive offering including their extensive branch network. It will be interesting to see if they would give up this approach. Especially now, that Citi is in the game.