Friday, August 26, 2005

George Mindling Column – 8-26-2005

Online Banks Competing For Savings Dollars


The competition for your savings dollar is getting fierce. There is a new banking game in town. It is called direct savings and it is an on line, or Internet, method of bypassing the costs of “Brick and Mortar” banking institutions. Actually, the game isn’t in town at all, but available everywhere to anyone on the Internet. Without the cost of doing business in a traditional neighborhood establishment, cost savings are passed on to the consumer. Or, in this case, the banking customer looking for a place to put cash with the highest return. The current big players are ING with their “Orange” accounts, and Emigrant Savings Bank with their American Dream Accounts, and Presidential Savings with its Premier Savings Account.

ING Orange accounts currently pay 3.30% APY. ING at http://home.ingdirect.com/ has a quick and easy sign up procedure and has a deposit confirmation procedure to validate your new account. It takes 10 days before you can draw against the account, but only takes a couple of days for the account to be active.

Emigrant at http://www.emigrant-direct.com/ was made famous by Suze Orman’s recent endorsement. The Emigrant American Dream Account currently pays 3.50% APY with no fees and no minimum.

Also competing is Presidential at http://www.presidential.com/ . Presidential currently pays 3.87% APY and is also relying on the PC and Internet to do direct transactions.
The name of the game is the highest return available anywhere on your savings deposits. Only on line transactions, or telephone activity, is handled as there is no person-to-person interface available.

Opening an account is simple. Only two or three screens of information, including an active checking account and you have a new savings account. The checking account is required for the on-line transfer of funds between the new savings account and your current bank. Your checking account is a DDA, a Demand Deposit Account. A DDA account gives you the right to demand immediate payment of funds. Savings accounts, however, usually have a restriction of requiring you to provide the bank with 60-90 days notice of your intention to withdraw funds. While Emigrant has this warning in their on-line agreement, ING does not. According to Internet sources, the time period is rarely enforced and most transactions appear as completed within 48 hours. My personal experience with our direct account is that transactions are completed in a matter of hours.

How the traditional banks handle the new on-line competition remains to be seen. For example, Bank of America http://www.bankofamerica.com has its current rate buried at the bottom of the fourth web page about the benefits of their savings accounts. The difference, of course is that is all full service banks have a local, neighborhood presence, and offer far, far more than just a savings account. Like a real person to see and talk to, face to face. Traditional banking services will have to compete with cost, and the consumer will win either way.

George Mindling

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