Update 4/27/09: Clear Sky Accounts is now accepting new applications.
Clear Sky Accounts (the internet unit of Chesapeake Bank) just sent emails to its customers announcing that it is no longer accepting new account applications and that it will not allow existing Clear Sky customers to make additional deposits. The CEO of Chesapeake Bank stated that they were overwhelmed by deposits and their capacity for any more deposits has been reached. On the plus side, they plan to continue to guarantee 3.75% APY until March 31, 2009. Also, he stated that this is just a short-term situation. Below is the full email that a reader had posted:
Important information from Clear Sky Accounts - Please Read:
When Chesapeake Bank opened our online-only banking arm, Clear Sky Accounts, last November, we saw an opportunity to provide the same level of high-quality service and banking products online that has been the hallmark of our bank for more than 100 years. While we expected that our savings and checking rates would be well-received by the banking public, we could not have predicted the tremendous response we have received to our offerings, in particular, the 3.75% annual percentage yield savings rate that we made available earlier this year and guaranteed through March 31, 2009.
To be frank, we have been overwhelmed by deposits, and while banks are in the business of accepting deposits from customers, our capacity for any more deposits has been reached. Regrettably, that means that not only will we not be opening any new accounts, but that existing depositors will not be able to make any additional deposits into their existing Clear Sky accounts.
We recognize that this decision will raise more than a few eyebrows, particularly at a time when financial institutions are under a great deal of scrutiny. But for more than a century, we have operated through sound banking principles (we did not solicit nor did we receive any of the federal TARP funds, for example). However, given the many millions of dollars that have been deposited over the past few weeks in Clear Sky, we are at capacity for online deposits. We regret that we had to take this action.
You no doubt have a number of questions, which we stand at the ready to answer (1-877-257-7594). Meanwhile, we want to assure you of the following:
* Your deposits are safe and are available to you at any time
* You are guaranteed the 3.75% annual percentage yield rate of return until March 31, 2009
We anticipate this to be a short-term situation. We look forward to earning your trust and continuing to serve your online banking needs.
President and CEO
Details of the Deposit Restrictions:
For those who have set up direct deposits with Clear Sky Accounts, I've asked a CSR via their online chat system about this issue. According to the CSR, they'll continue to accept direct deposits.
Update: Readers have informed me of an important detail, and I just confirmed this with the CSR via the online chat. The deposit restriction for existing customers only applies to the savings account opened as part of the 3.75% APY promotion. It does not apply to their checking account, and it does not apply to customers who opened the savings account after the 3.75% promotion had ended.
This is the first time I can remember seeing an internet bank implement such an action. For a Clear Sky customer who was about to make a large deposit, this will be very frustrating. It also makes me wonder about similar add-on accounts from other institutions. As this shows, accounts that lock a rate for a period of time and allow unlimited deposits can be overwhelming to an institution. I've mentioned several credit unions that offer add-on CDs. Will they be forced to limit future deposits? I discuss the possibility in this post.
One thing important to realize about Chesapeake Bank is that it's a small bank with only $524 million in assets and $417 million in deposits as of 9/30/08 (data available at this FDIC page). So in the last few months, they could have easily doubled their deposits through the internet.
I've had conversations with managers from other banks and credit unions who have mentioned that new deposits during their account specials over the last two months have far exceeded their expectations. One manager said an account special brought in 10x over their original expectations.
With the stock market crash and the endless stories of Bernard Madoff, it appears many people are turning to the safety of federally insured banks and credit unions. With the temporary $250,000 insurance limits and new rules on revocable trust accounts (see post), it's easier for people to place large amounts under the insurance limits. One bank manager mentioned to me that he had a customer make a deposit of over $2 million. He was able to keep it under the insurance limit through a long list of beneficiaries. Unfortunately, this will continue to put downward pressure on deposit rates.
For more information on Clear Sky Accounts, please refer to my Clear Sky Accounts review.
Clear Sky Accounts are FDIC insured through Chesapeake Bank of Virginia. There's a link to the Clear Sky website on the left side of Chesapeake Bank's front page. Chesapeake Bank has been FDIC insured since 1934 (FDIC Certificate # 6862).