UFB Direct Slashes Rates - What’s Going On at BofI Federal?

UFB Direct slashed the rate of its savings and money market accounts making these unappealing for savers. The rate on both accounts fell from 0.80% to 0.20%. This surprised me since it appeared the rate had bottomed out at 0.80% which had put UFB Direct near the middle-of-the-pact for internet banks. I thought we might see some minor rate cuts, but I didn’t expect the rate to plummet like this. UFB Direct had launched these accounts with top rates in 2011 and 2012, and it appeared they had intended to keep the rates competitive. Below is the rate history for both the money market account and the savings account:

UFB Direct Money Market Rate History

• 05/30/12 - 1.15% APY (launch)
• 07/14/12 - 1.25% APY
• 08/06/12 - 1.30% APY
• 09/04/12 - 1.10% APY (~3 mo from launch)
• 10/10/12 - 1.05% APY
• 10/29/12 - 0.95% APY (~5 mo from launch)
• 11/19/12 - 0.80% APY (~6 mo from launch)
• 04/23/13 - 0.20% APY(~11 mo from launch)

UFB Direct Airline Rewards Savings Rate History

• 08/04/11 - 1.30% APY (launch)
• 01/18/12 - 1.10% APY (~6 mo from launch)
• 02/01/12 - 1.05% APY
• 02/07/12 - 0.95% APY
• 02/13/12 - 0.90% APY
• 02/22/12 - 0.85% APY
• 02/28/12 - 0.80% APY (~7 mo from launch)
• 04/23/13 - 0.20% APY (~21 mo from launch)

Why Such a Big Rate Cut?

UFB Direct is a division of BofI Federal Bank. I asked one of BofI Federal’s marketing specialists about the reason for such a big rate cut. According the marketing specialist, they want to focus on checking accounts. They’re encouraging customers and future customers to look at both the high interest and rewards checking that are available through Bank of Internet USA (another division of BofI Federal Bank).

It should be noted that Bank of Internet USA’s High Yield Savings account also had a rate cut. Its rate fell from 0.80% to 0.61% at the same time as the major rate cut at UFB Direct. I’m not sure why UFB Direct’s rate cut was so much larger. UFB Direct also has a checking account, the Airline Rewards Checking. This pays no interest, but it offers airline miles. One of the main ways to earn airline miles is with debit card purchases.

So it does appear they are wanting to move customers from the savings to the checking accounts. Checking accounts can be more profitable for banks due to debit card interchange fees. Every time you use your debit card, an interchange fee is paid by the merchant to the bank.

Bank of Internet USA Rewards Checking Account

This information from BofI Federal’s marketing specialist suggests that we won’t see similar big rate cuts on Bank of Internet USA’s checking accounts. Of course, there’s no guarantee. Over the last two years, it appeared they had planned to keep the UFB Direct rates competitive.

Bank of Internet USA’s Rewards Checking account continues to be a good deal. Its top rate of 1.25% APY (as of 4/26/2013) has been maintained since it was launched in July 2011. The only negative change happened in January when a balance cap of $150,000 was introduced. The portion of a balance greater than $150,000 will not earn interest. For more details of this balance cap and the Rewards Checking account features, please refer to my January post.

An even better deal is available through BofI Federal Bank’s affinity groups. As I described in my post on the BofI Federal Bank’s affinity groups, the same Rewards Checking account with similar features has a 1.50% APY (as of 4/26/2013) for balances up to $150,000. It’s questionable how long this rate premium will last. Already, the CD rate premium has ended. The 1-year CD rate available through the affinity groups is now 0.80% which is the same that’s available directly at Bank of Internet USA. There used to be a 35-bps rate premium.