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First Anniversary of Barclays Online Savings Accounts and CDs

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Barclays

It has been over one year since Barclays started offering an online savings account and online CDs. During this time, its rates have remained very competitive. I thought this would be a good time to reach out to Barclays so we can learn more about the bank and what we may see in the future. On Friday I was given the opportunity to talk with Andrew Harris, Barclays U.S. Director of Deposit Products and Customer Experience.

The first thing I learned in our discussion was that Harris was surprised last year when I did my first Barclays blog post. Barclays first started offering its online savings account and CDs to the general public on March 22, 2012. This wasn’t an official launch (which was on May 7, 2012). The early launch was intended to be primarily for employees, their friends and their family to help Barclays fully test out the user interface. However, they decided to make it available to anyone who wanted to open an account. During this time, they avoided advertising the new internet bank. So that’s why they were surprised when they saw my Barclays review just one day after the accounts were made available. I’m always on the lookout for a good deal, and when I came across Barclays last year and confirmed that anyone could apply, I didn’t waste any time in posting my review.

So why did Barclays decide to launch an internet bank in the U.S.? In addition to broadening its reach in the U.S., Harris said they also saw retail deposits as a more reliable source of funding for its credit card operations. Its U.S. credit card operations began in 2004 with the acquisition of Juniper. Since that time the operation has grown considerably.

When the internet bank launched, Harris said that they did not only want to be competitive, but they also wanted to offer consistency and simplicity. We have seen all of these traits in the last year. The time when Barclays first launched it was facing competition from new internet banks like TIAA Direct and CIT Bank. From our discussion, it was apparent that they pay close attention to the competition. That was clearly a factor for them launching the bank with a competitive savings account yield of 1.00% and maintaining this rate over the last year. I asked how long this might continue. As you might expect, he can’t guarantee it will hold, but they do want to keep it as long as possible. Market factors will be an important consideration.

If you have opened a savings account or CD at Barclays, you have seen what is meant by simplicity. When I opened a Barclays CD, the application and funding process was simple and smooth. One of the nice features of the application is the ability to designate beneficiaries which will make an account a Payable on Death (POD) account. Harris mentioned that he has learned how important FDIC coverage is for customers. As a result, they have made it easy to open POD accounts to allow customers to maximize their FDIC coverage (see my post). For specific FDIC coverage questions, they will refer customers to the FDIC calculator. However, there have been cases when Barclays has warned customers who may have misunderstood the FDIC coverage rules. One example Harris mentioned was a customer who opened several individual accounts with $250K deposit in each. No beneficiaries were listed so only $250K was eligible for FDIC coverage. Barclays recognized that the customer may have misunderstood the FDIC rules and warned him. It turned out the customer had been misinformed by his financial advisor.

Not everything has been perfect at Barclays in the last year. One thing that concerned some DepositAccounts.com readers was the way Barclays increased the early withdrawal penalty (EWP) on new CDs. In addition to the concern of a larger EWP, there were concerns about the communication and the documentation discrepancies. First, I asked about the reason for the larger EWP. The EWP increased from 90 days of interest to 180 days of interest for CD terms over 2 years. According to Harris, they evaluated the change based on what their competitors have done. As we know, there’s a tradeoff between the rate and the EWP. A smaller EWP can force a bank to offer a lower rate. So these factors led to a larger EWP. However, they tried to minimize the increase to only long-term CDs with terms over 2 years. In addition, they kept the EWP simple. Some other banks have come up with complicated equations that try to compute an economic replacement value.

A very important thing to note of this early withdrawal penalty change is that it was NOT retroactive. Harris stressed the fact that existing CDs were not affected, and he also stressed that Barclays will not make such changes retroactive in the future (if changes are made in the future). That is the reason why this change wasn’t communicated to existing customers. Barclays felt it would create confusion for its customers since the change didn’t affect their existing CDs.

Regarding the discrepancy in the documentation, Harris said they have taken steps to ensure better execution in the future. The issue was that it took several days for the FAQ to be updated with the new EWP after the new EWP was shown in the terms and conditions document.

Last November Barclays announced in a press release that it had surpassed $1 billion in deposits for its online savings accounts and CDs. Harris did not provide new details on their deposit growth, but deposit growth continues to exceed expectations. Just like for any bank, deposit growth, the competition and the Fed policies will all be factors that will affect future rates. I can’t say if Barclays rates will hold up for its second anniversary, but I think it’s a good bet Barclays’ rates will remain very competitive.


  Tags: Barclays, CD rates, savings account

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Comments
26 Comments.
Comment #1 by Anonymous posted on
Anonymous
I don’t see them as positive as you posted. Their ACH system is a disaster.
It take 5 business day to move money in or out using their web site.
When I called to complain about it, they said to close the account and move my business somewhere else.
There is no ATM card or checks, so moving money must be done using third party ACH if you want it done faster and they will not give interest credit to the funds while in waiting (hold for7 calendar days).

19
Comment #9 by Anonymous posted on
Anonymous
#1 is correct, they did not pay interest while the money was in transit. It took seven days to show in the account, but were taken from my local bank in one day. The hold period is a deal killer. I would not recommend using Barclays ACH system.

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Comment #2 by Anonymous posted on
Anonymous
I do not believe it is accurate that interest does not accrue on funds on hold.

Per their T&C:

Interest in your Savings Account will begin to accrue on the business day the deposit is received. If a deposit is received before 11:00 PM ET on a business day we are open, we will consider that day to be the day of your deposit. If your deposit is received after 11:00 PM ET or on a day we are not open, we will consider that the deposit was received on the next business day we are open. For interest to be posted to your Savings Account you must maintain a minimum balance that would earn you at least $0.01 within the statement cycle.

2
Comment #3 by mrvirgo posted on
mrvirgo
I opened a savings account with Barclays in January of 2013. It was very easy to open and account and there were no glitches. There is indeed a 5 day hold which in my opinion is unacceptably long so I do not use Barclays system. Money sent to my Barclays savings account from other financial instituions (using non-Barclay ACH systems) is made available at once; there is not hold. So in essence, I get around the long hold. If the 1% rate tanks, a year having gone by,  I won't hesitate to move it elsewhere.  So far, I have no complaints with Barclays.

10
Comment #4 by psjf posted on
psjf
Thanks for the interview, Ken.  I am considering Barclays, Ally, and a few of the other usual suspects for an online savings account.  The emphasis on simplicity and consistency, if they bear out, are encouraging for Barclays.  Did Mr. Harris offer any hints as to Barclays' perspective on the outlook for the rate environment over the next 2-3 years by chance?  

6
Comment #5 by KenBDG posted on
KenBDG
Mr. Harris offered few hints about the future rate environment. About the future savings account rate, he did say they want the current rate to last as long as possible, but it will depend on the market.

6
Comment #6 by Anonymous posted on
Anonymous
Even if Barclays were planning to lower their interest rate tomorrow, do you realistically believe Mr. Harris would tell you?  Honestly?

8
Comment #7 by Anonymous posted on
Anonymous
#6, I'm guessing that he has a little more respect for Ken's blog than you are thinking in light of: a) DA's scoop on the launch last year before it was public, and b) the fact that he granted this interview.  

In light of that, I don't think it would be wise for him to give a strong impression of stable rates to Ken - and by extension, Ken's many readers and a good number of his account holders - if he expected the rate to drop materially in the short term.

Having said all of that, I appreciate your skepticism and am aware that I might have egg on my face tomorrow when the rate drops by 20 basis points.  :)

5
Comment #8 by Wil posted on
Wil
On my advice, my Dad opened an online savings account at Barclay's. It has served him well.

5
Comment #10 by Anonymous posted on
Anonymous
I was told that interest was accruing during the hold period which seemed ok to me.   Perhaps Ken can verify that if he is able.

1
Comment #11 by Anonymous posted on
Anonymous
To Anonymous - #10,

I can testify to #1 and #9 comments, they are right. Barclyas does not pay interest on any amounts while in transit. It happened to me too and the amount was substantial.

5
Comment #12 by KenBDG posted on
KenBDG
About paying interest on funds that are on hold, I was told that interest is paid during this time. The T&C paragraph quoted by anonymous #2 is correct. See Barclays T&C document and search for "Interest in your Savings Account".

2
Comment #13 by Anonymous posted on
Anonymous
Here's my recent experience...opened a new account online Sunday evening. Account was set up and able to log on immediately. Checked Tuesday morning and my initial deposit was listed in the account. Checked my other bank where the funds were coming from and the transaction hadn't posted yet. So far Barclays seems fast, simple, and good...with possibly a day or two of double dip interest(?).

2
Comment #14 by Alskar posted on
Alskar
The biggest downside to Barclay's is the lack of IRA and/or Roth IRA CD's.  The vast amount of my retirement money is in tax advantaged accounts and Barclay's doesn't offer any tax advantaged CD's. 

 

2
Comment #15 by Anonymous posted on
Anonymous
To Anonymous - #13,

The initial deposits are not run via ACH system, try that from their web site next time around, then come back here and post your experience.

Ken,  Barclays T&C document is just for the regulators, in practice they cheat. I can vouch for it and have the proof for it. If you want, I can mail it to you.

4
Comment #16 by Anonymous posted on
Anonymous
Good article, Ken.  Of course the 5 day ACH thing is a joke.  It's ridiculous.  No sane person would use such a thing.  I initiated a couple of (ACH) pulls just within the last hour, before visiting here.  The money will be in my Alliant account tomorrow.  Why in God's name would I, or anyone, use a system that takes five days!!  One day service is the current standard.

The funny part of this, for me, was when the guy told Ken the bank has come to realize the importance of FDIC protection!  Well, duhhhhhhhh!!  Exactly how long did it take them to figure that out!  But it's the kind of belated insight you would expect from a bank which expects customers to tolerate five day ACH service.  What are these people smoking!!?

4
Comment #17 by Cecil (anonymous) posted on
Cecil
Does opening their savings account result in a ChexSystems inquiry? (There's nothing bad on my report; I'm just trying to avoid having too many inquiries littered on it.)

1
Comment #18 by Anonymous posted on
Anonymous
They ran soft pulls at TransUnion and ChexSystems few days ago.

4
Comment #19 by Anonymous posted on
Anonymous
If you bank with them, please check the interest paid. They short change me $2-5 per month.

3
Comment #20 by Anonymous posted on
Anonymous
#19, my interest has been short as well.  I calculate my interest using the date Barclays would have received the funds (2 days after the ACH was initiated).  If this is a consistent pattern, it might be time to notify regulators so they can check for violations of Barclays' Truth in Savings disclosure.

4
Comment #22 by CapitalClimate (anonymous) posted on
CapitalClimate
Just 2 weeks after the interview, they cut the rate to 0.90% today.  Nice!

4
Comment #23 by Anonymous posted on
Anonymous
I just opened an account at Barclays and felt like I was blindsided! Not to mention that on the very day I opened it, the rate dropped from 1% to .9%.

First I initiated an “immediate” transfer of funds to Barclays and when they say immediate they mean it! There is NO option to edit or cancel that transaction once you hit submit and I find this to be a huge problem.  Every online transaction I’ve ever done has given you a chance to change or cancel it for some period of time, as people change their mind, errors occur etc.  With such immediacy there should have at least been a warning given or a confirming “Are you sure you want to do this transaction?” message but none appeared or was obvious.  This becomes even a more critical issue as all transactions in this account are done via online transfers.

Secondly, the hold on online transfers of “cash” is excessively long.  My five day hold turned into eleven.  I made my deposit on a Friday and where one would think it should be available by that next Friday, I have to wait until Tuesday instead (with the holiday this weekend).  There isn’t even a tiered release. That is much too long to lose access to a large sum of money.

Finally, I received absolutely no assistance nor the slightest attempt at concern when calling the CSRs at Barclays.

I would explore all options before opening an account here.  Either of the above actions would have been a deal breaker had I known, but both in unison is unacceptable.  Needless to say, once I’m finally able to access my money, my search for a new bank continues.

 

1
Comment #24 by Anonymous posted on
Anonymous
Have been using Barclay's for several months - got in while the 1% was still in force. My biggest complaint, despite the recent rate drop, is their buggy Web system and lack of weekend or late night support.

Example: I've set up a transfer from another institution that is going to be effective in two days, and there is no way to edit it. The Edit/Delete buttons on the pending transfers page are broken - they just don't work. Not in any PC, Mac, or iPhone browser I have. It's bad enough to have this happen, but there is no support number I can call. It seems they don't acknowledge that critical system functions require 24/7 web support. They don't seem to have any kind of tech support number, or phone tree option, at all.

I'm moving my money back to Ally next week. Er, I guess the week after, since this deposit I can't edit is going to take five days to be credited.

#FAIL

3
Comment #25 by Anonymous posted on
Anonymous
Ken,

Does Barclay hve any plans to start  an online money market account?

1
Comment #26 by Anonymous posted on
Anonymous
How exactly do you use a non barclay ACH system then to move funds from your external bank to your barclay savings?

1
Comment #27 by Anonymous posted on
Anonymous
start the ACH  from your old bank to barclays. not the opposite way around

... ok my review interest rate i would say is **** good.  that 5 day madness not so much took 9 days for the intial to get there then another 4 to become availble way to much time!! THERE IS NO ATM OR BANK CARD!!! I REPEAT THERE IS NO ATM OR BANK CARD!!! needless to say WTF so if its an emergency i have to wait 5 bussiness days to get that money for my kids  NOT HAPPENING in search for a new bank

1