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Do you hold most of your bank deposits at internet banks? If you’re an average Joe, most of your bank deposits are probably at brick-and-mortar institutions. According to this Financial Brand article, the online share of deposits was only 4.2% in 2012. In addition, the article shows that the growth of online deposits has slowed in recent years. There’s an interesting graph that shows the growth rate of online deposits falling from 28% in 2007 to 12.3% in 2012. During this same timeframe, the growth rate of brick-and-mortar deposits have increased from 3.3% to 7.4%. Thanks to DA member Shorebreak who posted on this article in this forum thread.
The article attributes the slowing growth of online deposits to two factors:
- Maturity of online banks
- Zero interest rate environment
In my opinion, the very low interest rate environment is the most important factor. I described how this hurts the appeal of internet banks in my post Do Internet Banks Offer Enough Advantages?. The higher internet savings account rates used to be a major incentive to go online (Remember those 5% and 6% online savings accounts in 2007?) The interest rate spread between internet banks and brick-and-mortar banks used to be over 3 percentage points back then. Now that most internet banks pay less than 1% APY on their savings accounts, the spreads are under one percentage point.
Poll Question
This article gave me the idea of this poll question: As a percentage of your bank deposits, how much are held at internet banks? I have a feeling, this percentage for many of us will be under 50% since so many of us use credit unions for CDs. It’s not part of the poll question, but do you plan to add more to your internet bank accounts or to accounts at brick-and-mortar institutions? Please let me know in the comments. If you’re cutting back on CDs due to the low interest rates, you may actually be adding to your savings accounts at internet banks. As I mentioned in my post, CDs or Savings Accounts in Today's Low-Rate Environment?, CDs don’t hold much rate advantage over online savings accounts. Member Pearlbrown just posted in the forum on a Credit Union Times article that shows that credit union CD balances are in a 4-year freefall. I think this trend will continue as long as this zero interest rate policy continues.
a) would like to amend earlier statement in post#9 from "I wouldn't hesitate to do business with Internet banks." by adding "and I have done business with them in the past".
b) Ken, I wonder what a poll of your readers as to what percentage of bank deposits are held at banks vs credit unions might reveal.
Considering only CDs, 88% of my funds are at credit unions, which is consistent with your statement that most of us use them for CDs. However, the percentage is essentially unchanged when considering total cash deposits across the board (CDs, reward checking accounts, savings, Money Market accounts, etc). My distribution may/not be typical - but clearly I do the majority of my business with credit unions. As mentioned in the prior post, it's not due to personal preference, but because that's where I'm finding (thanks again to you) the best rates for the products which interest me.
"b) Ken, I wonder what a poll of your readers as to what percentage of bank deposits are held at banks vs credit unions might reveal."
At present, 70 percent of my deposit account funds are at credit unions.
to Ken's efforts). My non CD deposits are 98% with Internet
banks; using lou's (post#11) definitions my CD's are all with
Internet banks/credit unions. There are no competitive local
rates in my community.
There are very few Internet only banks and their products and rates are inferior to other banks and credit unions.
Every bank and every credit union that has B&M branch has Internet presence and that is what most of you reported to Ken in the survey i.e. Internet only transactions for opening CDs and bank accounts.
Here is a review of the top ten online-only banks for 2013
http://online-only-banks-review.toptenreviews.com/
Would you please tell me from the list of your web page, which banks do not have brick and mortar presence?
And, which ones are online banks only?
All you have to do is click on the name of each bank at the top of the review to determine if any of them have a B&M branch.
http://online-only-banks-review.toptenreviews.com/
I believe Flagstar and Everbank have B&M branches available.
47% Credit Union
21% Bank
32% Other - employer savings program (this is not stock or investment in the company)