A couple of recent rate cuts gave me the idea of a post that reviews the biggest disappointments for internet banks. When an internet bank offers a very competitive rate, the hope is that the bank will continue the competitive rates. It's understandable that banks will have to lower their rates in the interest rate environment that we've been in, but that doesn't give them an excuse to make cuts that are worse than average. Are there any clues that an internet bank won't remain competitive? I'll review some potential clues in this post.
Rate Cuts at HSBC & Ready Saver
The two recent disappointing cuts were at HSBC Advance which cut its online savings account yield from 1.00% to 0.90% and at Ready Saver which slashed its online saving account yield from 1.35% to 0.90%.
Internet Savings Accounts from Large Banks
Many savings account customers may have already given up on HSBC. Its rates haven't been near the top for years. It's hard to believe they used to offer 6% APY in a new-money promotion back in 2007. With the rate now below 1.00%, it's yet another disappointment.
There have been many occasions in the last several years with large banks coming out with internet savings accounts. Many have become disappointments. Their rates have fallen much more than the average internet savings accounts. Here are some examples:
- Citibank's Ultimate Savings Account Yields - 4.65% in 2007, 0.45% as of 1/12/2011
- M&T Bank's e-Money Market Yields - 5.05% in 2007, 0.25% as of 1/12/2011
- M&T Bank's OnBank Yields - 3.75% in 2008, 0.25% as of 1/12/2011
When banks have been acquired by these large banks, it has been bad news for depositors. An example is when Provident Bank was acquired by M&T Bank. Provident Bank had been offering a competitive internet savings account at Provident-Direct.com. That sites now forwards visitors to M&T Bank's home page.
If small banks can avoid takeovers, we hope they can remain competitive. As we see with Southern Community Bank & Trust and its Ready Saver Account, that's not always the case. Southern Community isn't a large bank, but it's not small. It currently has $1.66 billion in assets. Smaller banks can have trouble keeping up with deposit growth on a nationally available account. Another factor to consider is the health of a bank. I noticed Southern Community's financial health has gone down in the last year. Their Texas Ratio has gone up in a year from 21.97% to 61.56%. Anything over 100% is considered at risk.
Internet Banks: ETrade and E-LOAN
Banks that we think will make good internet banks don't always work out. Two examples are ETrade Bank and E-LOAN. Both of these looked promising back in 2006 and 2007 when they had savings accounts that were paying over 5.00%. Also, both provided many good online account features. ETrade Bank's bank-to-bank transfer service was particular notable with fast ACH transfers. Unfortunately, both were hit hard in the 2008 financial downturn. ETrade Bank essentially gave up on its online savings account. It moved many of its customers to Discover Bank, and its Complete Savings Account now pays a tiny 0.30%. E-LOAN's deposits are held by Banco Popular. I'm not sure if E-LOAN's large rate cuts were due to Banco Popular or due to the problems with E-LOAN's loan service which was hit hard in the downturn. Whatever the reason, E-LOAN's savings account is no longer competitive. The top rate is only 0.80%, and that requires a $100K balance.
Credit Union Disappointments
There have also been some credit unions that have been major disappointments. Some might be placing Alliant in this category. If they can at least stay near what ING Direct offers, I won't consider them a major disappointment.
Back in 2006 I was hoping to see more credit unions offering internet savings accounts. This was due to the competitive savings account rates that RateEdge.com offered in 2007. The New York credit union, Sunmark FCU, launched this online savings account in 2006, and the rates remained higher than the best internet banks for a couple of years. I was hoping other credit unions would jump on board and give internet banks more competition. That never happened. In addition, RateEdge.com has become a big disappointment. For the last 18 months, its rate has been only 0.20%.
What internet banks have disappointed you the most?