About two years ago, TIAA Direct quietly launched its internet bank to the public. Its very competitive savings and money market accounts attracted a lot of attention, and many readers opened accounts. Then in July 2012, TIAA Direct stopped accepting new customers. After 18 months, TIAA Direct has finally reopened its accounts to new customers. Anyone can now apply, but not many people may want to with its current rates.
When TIAA Direct first launched, the savings and money market accounts had a 1.25% APY on all balances. That held until January 2013. Then the rate fell and continued to fall through 2013. The savings account currently has a 0.40% APY on all balances. The money market account has a 0.50% APY on $50K+ balances and a 0.40% APY on balances under $10K (rates as of 2/18/2014). With the current rates, I don’t know why anyone would want to open these accounts. You can get much higher rates at the popular internet banks like Capital One 360 and Ally Bank.
TIAA Direct also offers CDs, and some of the CD rates are respectable, but there are still several better CDs at other internet banks. The best deals at TIAA Direct are currently a 1.90% APY 5-year CD and a 1.15% APY 2-year CD (rates as of 2/18/2014).
Yesterday, I asked a TIAA Direct CSR about the reason why they were closed to new customers for so long. The CSR just said were making enhancements for things like their account application process. I don’t know why it would take 18 months for this. Based on this time and the low rates, it seems likely TIAA management lost interest in the internet bank. Perhaps their demand for deposits shrunk.
After 18 months of making improvements, you would think the application process and account management features would be top notch. From what I was told by the CSR, that’s not the case. For example, I was told there is no ACH funding for a CD. Customers have only three ways to fund a CD: 1) internal transfer from your TIAA Direct checking or savings account, 2) mail in a check, or 3) wire transfer (no fee for incoming). When the CD matures, the only free option to receive the money is to ask for a transfer of the CD funds back into your TIAA Direct checking or savings account. I was told they charge $5 if you want them to mail you a check or $20 for an outgoing wire transfer.
TIAA Direct does have an ACH transfer service for its checking, savings and money market accounts. However, one big limitation is that they restrict the maximum outgoing transfer to $5,000. Please refer to TIAA Direct’s "Transferring Money" FAQs for more details.
In summary, the good news is that TIAA Direct is accepting new customers. The bad news is that there are no accounts worth opening. Hopefully, we’ll see some better rates from TIAA Direct in the future that will remind us of the time when TIAA Direct first opened its doors to the public.