Last week FNBO Direct emailed customers to let them know that they will be raising the online savings account from 0.65% to 0.85% APY effective January 2, 2013. When I first saw the email, I thought it may be targeted to just customers participating in the 1.35% APY promotion. The FNBO Direct website had no mention of the upcoming rate increase. So I first wanted to confirm which customers will be seeing this new rate. According to two different customer service reps, this new rate will apply to all new and existing customers.
Of course this new 0.85% rate isn't anything to get excited about. There are still four internet banks offering non-promo yields of 1.05%. Nevertheless, the FNBO Direct savings account will become fairly competitive with a 0.85%. It's not high enough to be worthwhile if you're not already an FNBO Direct customer. However, it might be high enough to keep existing customers who had moved money into their FNBO Direct accounts to take advantage of the 1.35% APY. I'm sure that was the intent of this new rate hike. If you have been receiving 1.35% APY at FNBO Direct, is 0.85% high enough for you to consider keeping your money parked in this savings account in the new year?
Internet banks can attract a lot money when they offer a high rate, but customers can easily withdraw their money when the accounts no longer become competitive. So if a bank wants to keep deposits, it has to handle the end of a promotional rate carefully. A gradual reduction in the rate will probably prevent a mass exodus in deposits.
Hopefully, FNBO Direct will make sure its rates are transparent. We have seen some banks advertising promotional rates while they quietly lower rates for their existing customers. Salem Five Direct is a recent example of one bank that has done this. Several Salem Five Direct customers reported that they learned of rate cuts months after those rate cuts took effect on their accounts. Those cuts didn't effect new customers who signed up for the promotional rates. This kind of tactic isn't going to be able to keep deposits over the long term. Some customers who don't pay much attention to their savings accounts may just leave their money in the accounts. However, in my opinion, this tactic will anger most customers who will move their money elsewhere.
If you're considering whether to move your money, one thing to consider is that this 1.35% APY promotion was similar to what was offered in 2011. In both cases, only new money was rewarded with this higher rate. Money that was already in the account at the start of the promotion didn't qualify for the higher rate. So if you keep your money in this account, you may not be able to take advantage of another FNBO Direct promotion next summer (if one is offered).
If you plan to move your money out of FNBO Direct, don't forget that FNBO Direct has a slow bank-to-bank ACH transfer service. You can speed up the transfers if you initiate the transfer from another bank or credit union.
FNBO Direct became popular back in 2007 when it offered a promotional 6% APY for 5 months. It also made many customers mad when it threatened account holds on certain customers who didn't provide sufficient employment history.
After the 2007 promotional period, rates remained fairly competitive. However, in the last few years, rates have been a little low as compared to savings accounts at ING DIRECT and Ally Bank. This can be seen today with FNBO Direct's standard online savings account rate of 0.65% which is lower than the rate of ING DIRECT Orange Savings Account (0.75%) and the rate of Ally Bank Online Savings Account (0.95%). If FNBO Direct can maintain the new 0.85% rate next year, it may be an online bank to keep an eye on. Rates are accurate as of 12/26/2012.
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