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Inside ING Direct - Why the Low Savings Account Rate

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This Bank Technology News article goes into the history of ING Direct and its CEO, Arkadi Kuhlmann. It gives some insights about why ING is not keeping up with other online banks in terms of rates.
Continued Fed rate hikes are taking a toll. In the second quarter, ING Direct earned $60.3 million-not much for a thrift its size-and had a razor-thin margin of 1.33 percent, down 62 basis points from a year ago. Kuhlmann concedes it will be difficult to maintain both profits and growth in this environment, and says he's inclined to pursue the latter.

So it looks like Kuhlmann will sacrifice being the leader in rates to preserve better profits. ING Direct is also willing to drop costly customers for the same reason. Here's what the article describes about this policy:
To promote customer homogeneity and keep costs down, ING Direct won't hesitate to "fire" customers who demand too much.
...
Kuhlmann says the company "weeds out" up to five percent of its customers each month, for violations like asking for statements via mail, contacting the call-center too often or demanding a better deal because they have a large sum of money to deposit.

Although ING Direct doesn't have the best rates and is not friendly to difficult customers, it has been successful. It's now the nation's largest standalone internet bank. But it's going to be difficult for ING Direct to continue to grow with banks like EmigrantDirect and HSBC Direct. One option for ING is to offer more products like checking accounts. Banks often use checking accounts as a way to build relationships that keep customers from leaving. However, Kuhlmann has seen more negatives than positives. Here's Kuhlmann's opinion about checking accounts:
I don't know how to create a good value proposition and make money with checking. It's the no. 1 area where you destroy goodwill from customers. Even if you offer free checking, consumers don't believe it. You ding them with late charges and fees and holds. ... They always see it as a bait-and-switch.

ING Direct may have one of the most fancy online bank websites, but that's not going to keep the customers. I hope ING Direct will at least try to keep within 0.25% of the best no-minimum saving account rates.
Comments
Neo
  |     |   Comment #1
I suppose I would be one of those customers that demands too much. Not by requiring paper statements or calling into the CSR but by wanting the highest rate possible. Is it bad of me to want my money with whichever bank is paying the highest rates? Since it was ING that had the slogan - "Save Your Money" and that is exactly what I am trying to do while making it work for me.

Neo
Nick
  |     |   Comment #2
In the last week, I must have seen 30 commercials on TV for ING's 3.75% rate. And yet, everyone I know who has an ING account got one because they heard about it from a friend or online. Maybe ING should stop wasting money on TV ads and start putting it toward trying to win back customers from ED and the others.
Neo
  |     |   Comment #3
I have only had my ING account for 1.5 years and I opened it because I saw a banner on some web site. After opening the account I started to recall seeing all those TV commercials. Now that I am a customer, I have also wonder if ING is wasting money with all the TV commercials.

Neo
Anonymous
  |     |   Comment #4
wonderful site,better than looking at bankrate,But chevychase bank in DC metro area is offering 6% for 6 months until december 28 with platinum checking in select branches
Banking Guy
  |     |   Comment #5
Thanks for the news about the Chevychase bank.

About ING Direct and commercials, I haven't seen any on TV in Austin. I wonder if they're targeting a specific region.

However, I have seen a few HSBC Direct commercials. I hope this cost doesn't hurt future rates.
Anonymous
  |     |   Comment #6
I liked ING (okay, I really liked the orange bouncing ball) and was sorry to leave them; but my initial checking account was suddenly closed through bank error, and they wouldn't allow me to electronically add another account (I don't use checks). So I had to close the account to get my money back. Stupid policy. The phone-help guy was very cavelier about it.
Banking Guy
  |     |   Comment #7
I thought I heard about ING Direct taking away the capability to create new external links online. Perhaps there were too many people linking to EmigrantDirect and other places with higher interest rates.
Anonymous
  |     |   Comment #8
What bothers me, besides the lag behind rate increases, is that ING UK and ING AU both have rates that are nearly 1.5 percent higer than the USA rates - Nice - take good old USA bucks, and pay them to the non-USA customers....????

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