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Internet Savings Accounts That Became Duds

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Internet Savings Accounts That Became Duds

A couple of recent rate cuts gave me the idea of a post that reviews the biggest disappointments for internet banks. When an internet bank offers a very competitive rate, the hope is that the bank will continue the competitive rates. It's understandable that banks will have to lower their rates in the interest rate environment that we've been in, but that doesn't give them an excuse to make cuts that are worse than average. Are there any clues that an internet bank won't remain competitive? I'll review some potential clues in this post.

Rate Cuts at HSBC & Ready Saver

The two recent disappointing cuts were at HSBC Advance which cut its online savings account yield from 1.00% to 0.90% and at Ready Saver which slashed its online saving account yield from 1.35% to 0.90%.

Internet Savings Accounts from Large Banks

Many savings account customers may have already given up on HSBC. Its rates haven't been near the top for years. It's hard to believe they used to offer 6% APY in a new-money promotion back in 2007. With the rate now below 1.00%, it's yet another disappointment.

There have been many occasions in the last several years with large banks coming out with internet savings accounts. Many have become disappointments. Their rates have fallen much more than the average internet savings accounts. Here are some examples:

  • Citibank's Ultimate Savings Account Yields - 4.65% in 2007, 0.45% as of 1/12/2011
  • M&T Bank's e-Money Market Yields - 5.05% in 2007, 0.25% as of 1/12/2011
  • M&T Bank's OnBank Yields - 3.75% in 2008, 0.25% as of 1/12/2011

When banks have been acquired by these large banks, it has been bad news for depositors. An example is when Provident Bank was acquired by M&T Bank. Provident Bank had been offering a competitive internet savings account at Provident-Direct.com. That sites now forwards visitors to M&T Bank's home page.

Ready Saver

If small banks can avoid takeovers, we hope they can remain competitive. As we see with Southern Community Bank & Trust and its Ready Saver Account, that's not always the case. Southern Community isn't a large bank, but it's not small. It currently has $1.66 billion in assets. Smaller banks can have trouble keeping up with deposit growth on a nationally available account. Another factor to consider is the health of a bank. I noticed Southern Community's financial health has gone down in the last year. Their Texas Ratio has gone up in a year from 21.97% to 61.56%. Anything over 100% is considered at risk.

Internet Banks: ETrade and E-LOAN

Banks that we think will make good internet banks don't always work out. Two examples are ETrade Bank and E-LOAN. Both of these looked promising back in 2006 and 2007 when they had savings accounts that were paying over 5.00%. Also, both provided many good online account features. ETrade Bank's bank-to-bank transfer service was particular notable with fast ACH transfers. Unfortunately, both were hit hard in the 2008 financial downturn. ETrade Bank essentially gave up on its online savings account. It moved many of its customers to Discover Bank, and its Complete Savings Account now pays a tiny 0.30%. E-LOAN's deposits are held by Banco Popular. I'm not sure if E-LOAN's large rate cuts were due to Banco Popular or due to the problems with E-LOAN's loan service which was hit hard in the downturn. Whatever the reason, E-LOAN's savings account is no longer competitive. The top rate is only 0.80%, and that requires a $100K balance.

Credit Union Disappointments

There have also been some credit unions that have been major disappointments. Some might be placing Alliant in this category. If they can at least stay near what ING Direct offers, I won't consider them a major disappointment.

Back in 2006 I was hoping to see more credit unions offering internet savings accounts. This was due to the competitive savings account rates that RateEdge.com offered in 2007. The New York credit union, Sunmark FCU, launched this online savings account in 2006, and the rates remained higher than the best internet banks for a couple of years. I was hoping other credit unions would jump on board and give internet banks more competition. That never happened. In addition, RateEdge.com has become a big disappointment. For the last 18 months, its rate has been only 0.20%.

What internet banks have disappointed you the most?


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Comments
27 Comments.
Comment #1 by Jane Sanders (anonymous) posted on
Jane Sanders
It's a really sad state for savers, with rates about as low as they can possibly go. I guess Joe Saver can't compete with the free money coming from the Federal Reserve.

9
Comment #2 by OC Steve (anonymous) posted on
OC Steve
How about Internet Banks that became duds?  

That would include Bank of Internet, USA.  They are over 10 years old, and until only very recently, did not have an ACH generation service on their website.  For this service they charge $5 or more, depending on the timeframe desired for the transfer.  They also recently (12/2010) went through a data processing conversion, to of all things a CU specific software program.  They cannot even render on-line statements yet, due to conversion difficulties.  What a way to run an S&L saying it's an Internet Bank!!  Don't expect high rates either on checking, money market or savings.  What a dud!!

OC Steve

8
Comment #3 by Anonymous posted on
Anonymous
Sounds like rather than becoming a dud, that they have always been a dud.

3
Comment #4 by John (anonymous) posted on
John
I have to say ING Direct has been a disapointment. It use to be a rate leader or at least in the top 5. It hasnt been anywhere near the top as far as high rates go for some time now. Speaking as a saver, I'm getting desperate for a high yielding savings account.

5
Comment #5 by Anonymous posted on
Anonymous
Bernanke's QE2 will totally destroy the Dollar and the savers. Don't expect any better times yet, the worst is coming soon.

20
Comment #6 by Greg (anonymous) posted on
Greg
The banks (smaller or bigger), now can borrow or sell to Ben worthless paper for printed money and can do way with murder.
Some banks are counting to get rich out of QE2, borrow or sell worthless assets to the FEDs at 0%, invest on stock market or 30 year treasury and make a kill. The sky is the limit for the banks, savers are irrelevant and unimportant to the banks, they look at us as nuisance and are chasing us away with pitiful rates.

 

16
Comment #7 by Anonymous posted on
Anonymous
Internet based banks no longer have a major advantage over the branch based banks with interest rates that have drifted downward.  Also when the bank has financial problems, they then are forced to lower their rates so as to not compound their problem.  Borrowing (not saving) is the chief focus of the Fed now.

4
Comment #8 by Anonymous posted on
Anonymous
That's easy:  FNBO.  And the problem was not related to rates.  It was related to their crazy ways of conducting business and their wacky, unpredictable policies.  I've never been so happy, and so relieved, to be clear of any banking relationship as I was the day I ceased doing business with FNBO.  Those people are STRANGE!!


 

5
Comment #9 by Anonymous posted on
Anonymous
Are people closing their old savings accounts or leaving them open "just in case" they become good again?  I've close a couple (eg, AmboyDirect when they instituted the minimum balance to avoid a monthly fee), but have the rest open with $1 in them.  I transfer a few bucks into and then out of them once or twice a year to avoid any inactivity fees or closures, but otherwise just ignore them.

3
Comment #10 by DMooney (anonymous) posted on
DMooney
The primary reason that savings rates are so low is that the yields that banks, thrifts and credit unions earn on their assets are at very low levels.  The Federal Funds rate has been at historical low 0-.25% for 24 months, and the yields on high quality securities have also hovered at or near all-time lows. Loan demand is weak (contrary to reports that lenders don't want to lend), and banks earn more on loans than on securities investments. As older assets mature/repay, funds are reinvested/lent at lower current rates.  With the tepid recovery and the Fed maintaining a low rate bias, look for savings rates to stay low for some time. (The author is CEO of Alliant Credit Union.)

8
Comment #11 by Anonymous posted on
Anonymous
I never did open numerous savings accounts while rate chasing.  However, I have kept the minimum balance in my Zions Bank Internet Savings Acct. for a back up.  Fortunately my local bank has been paying for the last year or so and still is paying 1.55% APY interest  on their saving Acct. with no maximum deposit limit.  That's more than some banks are paying on 3 Yr CDs.  Thanks to Ken and this site, I do have CDs opened all over the country while rate chasing for my CD ladder which I started years ago.

2
Comment #12 by Bob (anonymous) posted on
Bob
This is a response to  DMooney (CEO of Alliant Credit Union.) #10.

If that is true what you are alleging, then all those big banks would have collapsed by now (bail out or not). My knowledge is somewhat different than yours.
First, all those banks and credit unions that received TARP money are doing great so far, because the same money was invested in the stock market, derivatives and long treasury bonds including the 30 years that paid and still pay around 4,5% .
CititBank, Chase, Wells Fargo, B of A and many others, made tremendous profits using the above methods of re-investing and returned most of the money back with 5% interest added to it and still are interested to do it again with QE2.
Second, if loan demands are weak, then it is not due to demand, but is due to the conditions attached to them. Most of peoples equity lines of credit were closed without fault of their own, but to potentially protect the banks from a default. Second mortgages were closed and demanded repayment in full do to equity shortage in the property. Credit cards were closed by the creditors for a simple miss payment or late payment or no activities.
If the whole banking system depended on those alleged 10% unemployed, then we had a rotten system or system based on deceit and manipulations by the banks and the credit unions.
Third, your explanation is based on static point of view and not on dynamic changes in the world of finances. If you depend only on the loans to pull back from the lows in the banking system, you put your dependency on the housing market to recover first and the long interest rates or spread to be greater then 2% for you to start rasing the saving interest rates.
If catch 22 is played out as you are implying, your vision as CEO has crumbled and can not be a reason for your credit union to be just one of them, failed institutions or short sided vision.
You have to implement new methods or inventions and adapt to bad and good times, by having new vehicles for savings, lending, customer oriented programs and to stay ahead of the curve. One of the jobs of every CEO is to be customer oriented, because without the customer support, every business fails.
Please, don’t fall into the trap of: everyone does it so will I and that is OK and I will be of the hook from the bad times we are in and I wash my hands of any responsibilities.

 

17
Comment #13 by cactus posted on
cactus
Credit unions didn't get any TARP money -- just banks.

2
Comment #14 by Anonymous posted on
Anonymous
To cacrus #13, read this:

"

Two Credit Unions Get TARP Funds

Hope FCU (Jackson, MS) and Genesee Co-op FCU (Rochester, NY) have received TARP funds in the form of subordinated debt through the Community Development Capital Initiative. Hope FCU and Genesee Co-op FCU received $4,520,000 and $300,000, respectively."

There many other credit unions that took similar to TARP using the FEDs free money windows in 2009 and early 2010. There are still numerous Government programs that are available to the credit unions even now. Many credit union shy way from openly talking about it even as we speak.

6
Comment #15 by Anonymous posted on
Anonymous
To #13, you are wrong, some of the credit unions that took TARP:

ORNL Federal Credit Union

Bay Federal Credit Union

Schools Financial Credit Union

Glass City Federal Credit Union

Central Jersey Federal Credit Union

Great Lakes Credit Union

IC Federal Credit Union

DuPage Credit Union

Spirit of Alaska Federal Credit Union

American Eagle Federal Credit Union

Silver State Schools Credit Union

Bay Gulf Credit Union

The Golden 1 Credit Union

Verity Credit Union

Golden Plains Credit Union

Grafton Suburban Credit Union

Tempe Schools Credit Union

Fresno County Federal Credit Union

Digital Federal Credit Union

Navy Federal Credit Union

Hope Federal Credit Union

Genesee Co-op Federal Credit Union

Wescom Central Credit Union

Technology Credit Union

IBM Southeast Employees' Federal Credit Union

Mission Federal Credit Union

Purdue Employees Federal Credit Union

Oakland Municipal Credit Union

Stanford Federal Credit Union

Central Florida Educators Federal Credit Union

ORNL Federal Credit Union

Bay Federal Credit Union

Schools Financial Credit Union

Glass City Federal Credit Union

Central Jersey Federal Credit Union

....... AND ON AND ON..........

the list is huge and endless, since new credit unions are getting the money every day from different programs, equivalent to TARP money.

8
Comment #16 by George (anonymous) posted on
George
TO NUMBER 13 ABOVE READ THIS:

On February 3, 2010, Secretary of the Treasury Timothy Geithner announced a new program to help two specific types of credit unions and banks expand their credit and services “to the country’s hardest hit communities.” The announcement was the culmination of six months of groundwork and collaboration with Treasury by the Federation, on behalf of low-income credit unions, and our counterparts representing community development banks.

The Community Development Capital Initiative (CDCI) is a program of the U.S. Department of the Treasury. Using returned funds from the Troubled Assets Relief Program (TARP) to support the continued viability, growth and expansion of CDFI-certified depository institutions, CDCI will make low-interest secondary capital deposits in CDFI-certified community development credit unions and community develoment banks.

Credit Unions are using returned money from the TARP and are just renamed to CDCI and it is actually TARP money recycled again.

6
Comment #17 by lou posted on
lou
To DMooney #10     I am a member of Alliant and am very pleased with the CU. Although I am a satisfied member, you should know that one reason why you may be experieincing weak loan demand is that the organiztion you have contracted this function to in New Jersey is hopelessly buureaurcratic and and very slow to process loans. I applied last year for a first mortgage, and they proceeded to lose my documents twice and take far too long to process the loan. Many times, I had trouble contacting anybody, and they were not very good in getting back to you in a timely manner. On the day of the closing, they sent the wrong documents and the closing had to be posponed until they got it right. I was extremely well-qualified and received the loan, but it took far longer then it should have. On more than one occasion I thought about terminating the process with them and taking my business elsewhere. I persisted, but I am sure you have lost a good deal of business because of the ineptitude.

1
Comment #18 by cactus posted on
cactus
Starting in October 2008, 500 banks got $550 billion in TARP money. http://www.nytimes.com/packages/html/national/200904_CREDITCRISIS/recipients.html including $45 billion to Bank of America

Starting in October 2010 - two years later - 48 community credit unions received $0.098 billion  http://online.wsj.com/article/SB10001424052748703859204575525820745204374.html

Not even pocket change - pocket lint - and two years later.

By the way... "CDFI banks, thrifts and credit unions - which have been certified by Treasury as targeting more than 60 percent of their small business lending and other economic development activities to underserved communities - will be eligible to receive capital investments under this program." http://online.wsj.com/article/SB10001424052748703859204575525820745204374.html#articleTabs%3Dcomments

 

 

 

 

1
Comment #19 by Shorebreak posted on
Shorebreak
One of the biggest duds around was AARP Financial Savings Center. Their High Yield Savings account yielded 4.45% on May 16, 2008. It was actually run by Waterfield Financial. If you go to their web site www.aarpsavings.com you get the following message: We are no longer managing or servicing bank accounts. For questions related to existing accounts, please contact 1-800-242-4934. Now that's a real "DUD".

1
Comment #20 by Anonymous posted on
Anonymous
You can add Apple Bank of N.Y. to that list. They are currently paying 0.90% interest, down from 1.35%just a few months ago.

1
Comment #21 by Anurag (anonymous) posted on
Anurag
I did not see Wamu Saving a/c which was paying ~4% before the bank collapsed and now the same is paying 0.10%. That is a GIANT DUD!!!

1
Comment #22 by Anonymous posted on
Anonymous
I'm mostly in stocks. You have to be with the rates for savings accounts this pathetic. I should have locked in a 5% CD a few years ago. Instead, I started a cd ladder with the longest term being 1 year. Needless to say, I did not renew those at the pathetic rates offered now. I still have a big chunk in cash earning 1.01%. I'm not going to risk the whole pile in stocks, even though my stock portfolio (which I started in Oct 2007) is up around 21%. At one point I was down 35%!

1
Comment #23 by Jeffrey W (anonymous) posted on
Jeffrey W
Provident Bank May 2008 paid 3.61%.  Lowered to 0.5% by May 2009.

Broadway Federal Bank April 2009 paid 3%.  Lowered to 1% by September 2009. 

I kept a tiny sum for quite some time before eventually closing out both.  Others I still keep small sums hoping they will rebound in the future and to avoid the hassle.

The best and reliable online banks with good rates currently are Ally Bank, Incredible Bank and SFGI Direct with Ing being a faithful old standbye that currently has a respectable rate.

1
Comment #24 by Internet Savings (anonymous) posted on
Internet Savings
This article is very helpful. I was not knew about this helpful topic. I am really sad to see also this violency




<a href="http://internetsavingsaccountshelp.com">Internet Savings</a>
 

 

1
Comment #25 by Internet Savings (anonymous) posted on
Internet Savings
This topic is very helpfull to me. I have to visit again 7 regular to this blog have a nice day see you again.



1
Comment #27 by beam me up (anonymous) posted on
beam me up
24  spam ??  25

1
Comment #28 by Alex (anonymous) posted on
Alex
Anybody tried Golden Key Banking Center? Looks like they are offering a competitive interest rate on both of their online savings account AND checking account.

Can't seem to find any reviews on them.

1