FNBO Direct notifed its savings account customers on July 1st of a new savings account promotion. This appears to be a good deal for existing FNBO Direct customers. For those who are not customers, it brings up an important question about keeping old internet bank accounts open. Do these types of promotions provide enough reason to keep open old savings accounts that are no longer competitive?
The FNBO Direct Promotion
First, for those who qualify for the FNBO Direct promotion, is it a good deal? The reader Maecl posted an excerpt of FNBO Direct's email in this discussion forum thread. The email described how existing customers could receive 1.35% APY guaranteed for six months starting this October. Here's an excerpt from that email:
To qualify, make a deposit of $50 in each of the months of July, August and September into your account. Beginning in October, you'll earn 1.35% APY* on the money above what your balance was on close of business June 30, 2011.
* Your account balance on June 30, 2011 is $1,000.00 and you make a deposit of $50.00 per month for each qualifying month. You are now qualified and will start earning a great rate!
* As a qualified customer, beginning October 3, 2011, you earn the promotional rate of 1.35% APY on balances above your balance on the close of business June 30th, 2011 through March 31st, 2012. The remaining balance will continue earning a competitive 0.85% APY**
Update 7/21/2011: FNBO Direct now says that all deposits including those made after September can qualify for the 1.35% APY during the promotional period. As specified in the email, only the portion of your balance over your June 30, 2011 balance will qualify for this 1.35% APY.
So from the email, it appears that the portion of your balance over your June 30, 2011 balance will earn 1.35% APY for 6 months as long as you deposit at least $50 in July, August and September. However, the email and even the small print of the email left out an important detail. According to my calls and readers calls to FNBO Direct, only deposits made in July, August and September will qualify for the 1.35% APY. Deposits made after September will only receive the non-promotional rate (currently 0.85%). This contradicts the small print of the email which states: "The promotional rate is applied to any deposit balance above the balance in your account at close on June 30th, 2011 (hereinafter referred to as the "Initial Balance") during the promotional period." I would interpret "any deposit balance" to include deposits made during the promotional period. As one reader noted in the forum, this discrepancy doesn't give one confidence in the bank.
If no other issues come up, this promotion can be a good deal. You should be able to make a $50 deposit in July and August, and then one large deposit in September to qualify for the 1.35% APY for 6 months starting in October. You can get close to 1.35% with some current internet bank accounts, but there's no guarantee these rates will last.
Keeping Old Internet Bank Accounts Open?
This brings up the question if it's worthwhile to keep old internet bank accounts opened. A few years ago many internet banks were offering bonuses and high rates. FNBO Direct's 6.00% offer was one of many promotions. These promotions have slowed down, but there have still been recent ones such as WT Direct's deposit bonus.
After the promotions, few internet banks have remained competitive. I can only think of two that have kept their accounts competitive. One is CNB Bank Direct which still offers 1.15% APY (as of 7/13/2011). Back in 2008 they had a promotion which guaranteed 4.00% APY for 6 months. The other one is Clear Sky Accounts which still offers 1.10% APY (as of 7/13/2011). In early 2009 it was offering 3 months of 3.75%.
So when an internet bank no longer becomes competitive, when should one close the account? The first potential issue is fees. Most of these internet banks don't have minimum balance requirements or monthly fees. So you can leave a small balance just for cases like FNBO Direct.
There are two potential gotchas with leaving bank accounts opened with small balances. One is the possibility that the bank adds a monthly fee for small balances. One example of this happened at Amboy Direct in 2009. They added a $5 monthly fee for balances under $100. If a bank already has a monthly fee for small balances, you also have to watch out for the case that the bank raises the required balance. This happened at Everbank in 2009 when it raised the minimum required balance on its money market account from $1,500 to $5,000.
The second potential gotcha is an inactivity fee. Many banks and credit unions will start charging you a monthly fee if there has been no activity in your account for a certain period of time. A year seems to be the most common period of time. The easiest way to avoid this is to set up a regular automatic transfer from one of your active accounts. For example, you can use Ally Bank to debit $1 from your FNBO Direct account every month. You have to make sure that such transfers will be consider as an "activity". I've heard reports that this ACH deposit/withdrawal doesn't always satisfy the active requirement. You also have to make sure that these automatic transfers don't put you over the limit on your maximum number of electronic withdrawals from a savings or money market account (6 per federal regulation).
Besides these potential gotchas, the only other issue that I can think of is having to keep an eye on another account. It's another login and password to remember, and it's another account to regularly check to make sure there are no erroneous debits. The banks' security measures often complicate this when they require new passwords after every few months. Tools like Mint.com can help manage multiple accounts, but there are security concerns with these tools, and even with these tools, passwords still need to be regularly changed.
Keeping old accounts open does take extra work. It might allow you qaulify for a few more deals like in this case with FNBO Direct. However, it might also disqualify you for some deals which are only available for new customers. There's no clear answer about the best strategy.