Question about banking
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Hi all,
So I just a WSJ article about some of the new trends in consumer banking. The article will be linked at the end.
Essentially, because of all the uncertainty that this year has brought, bank deposits swelled to all-time records. Banks that have been known to have low deposit rates (the interest a bank gives when they put deposited money to work), like Bank of America and JP Morgan, have kept their rates near 0%. Banks that attempt to attract customers with higher deposit rates, like Capital One and Marcus, have been able to cut their rates, as they too have an increased amount of deposits.
This is certainly an interesting article that highlights some of the new trends that 2020 has brought. The article also resonated with me on a personal note as well. Though I am a student and do not have much money saved in a bank, I do have some. Is it worthwhile to target a bank that can offer a higher deposit rate? Maybe 1.5% vs. .08%. I obviously understand the difference in 1.42% per year on the money in the account, but what are the other implications? Is there added fees or risk that comes with earning the higher return on my money?
Moreover, what else could I be doing with my money that I have saved up?
I would love to hear everyone’s thoughts on the article and my questions. Please comment!
Here is the link to the article:
Thanks for reading!
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@studentsavings How much is “some”? Even if you had $10K, the difference in interest would be $100 per 1 point of additional interest. And that’s before taxes.
As for risk, I’ve had an Ally Bank account for ages (current rate: 0.60%). There are no branches if you need branch services, but they are FDIC insured and stable, their phone customer service is prompt and high quality, and they have fewer fees than their no-monthly-fee brick-and-mortar competitors.
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@orthros Yes 10k is a helpful example. I certainly wouldn’t mind an extra $100 out of nowhere every year!
It sounds like Ally bank could be a happy medium - higher than 0 deposit rates, but also sufficient ancillary services and no fees. You mentioned branch services - could you briefly explain the importance of having local branches at a bank? What exactly do you need them for that you couldn’t do elsewhere?
Thanks!
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@studentsavings I think you may have misunderstood my point.
“$100 a year out of nothing” could be one interpretation, but you’d need to get 1% interest bump get $100 (pre-tax). If you’re a student with a 0% federal tax rate, then it’s truly $100. If (like me) you’re in a 25%+ bracket, it’s really $75 at most, even less if your state taxes it (hint: mine does).
Right now, Ally Bank pays 0.6% on savings accounts so $10K vs. 0.10% at BOFA is a net 0.5% gain or about $50/$30 pre- or post-tax annually.
While I certainly wouldn’t give up gobsmacks of interest for in-person services, some of them are incredibly helpful. If you have need for: cashier’s checks; notarization; medallion guarantees; in-person on-the-spot large amounts of cash (ATMs will limit you to $500 a day or so); HELOC or mortgage loans at the lowest possible rates (I got Prime minus 1.01% on a HELOC for having a local account, 1/2 point lower than the best online competitor); or just about anything else requiring a human being, having a branch is helpful.
I’m more than willing to have an account with $10K or so in it locally in exchange for all of this, which in effect costs me $4/month or less after taxes. YMMV.
If all you want is a place online to get your bucks, go for it. Just be aware that anything else is going to be difficult to get service for unless you have at least one local bank with someone there with the authority to help.
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@orthros I agree with your premise, but how often do you need those services? @studentsavings probably won’t need those services and if he does, he can open an account or join a credit union. Maybe even check credit unions for savings or interest-checking rates?
FWIW, as long as the bank is FDIC insured, the risk is relatively low. The bigger trend, though, is that the online banks offer teaser rates for a fixed period of time and then drops the bottom out of the interest the account pays. To keep the returns up, you have to keep switching banks.
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@zerenia Ironically, I see it just the opposite. Ally Bank kept their interest rates high for quite some time, and even now 0.60% is higher than Vanguard pays on their Prime Money Market. They aren’t the only ones - there are several online banks that pay ‘high’ interest rates and I’m not overly concerned about their failure.
By contrast, you may only need a teller once or twice a year, but if you don’t have a relationship with a local bank and need one to, say, cut you a cashier’s check so you can buy a car, then you are out of luck without a significant delay to set up a new account on the spot.
Again, his and YMMV but I find a few bucks a month a good insurance policy for something I may never need but would find worthwhile.
Above and beyond? Sure. Slam $5K or $10K or $50K into an online HYSA and pull in an extra few hundred a year pre-tax.
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@zerenia said in Question about banking:
@orthros I agree with your premise, but how often do you need those services? @studentsavings probably won’t need those services and if he does, he can open an account or join a credit union. Maybe even check credit unions for savings or interest-checking rates?
FWIW, as long as the bank is FDIC insured, the risk is relatively low. The bigger trend, though, is that the online banks offer teaser rates for a fixed period of time and then drops the bottom out of the interest the account pays. To keep the returns up, you have to keep switching banks.
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@zerenia Ally and Marcus have never offered teaser rates on their money market accounts to simply drop the bottom out on them. the rates plummeted this year due to the pandemic and the Fed offering 0% interest and US Treasury bonds paying next to nothing. You can’t expect the banks to pay out interest higher than the going rates on borrowing money. ( mortgage rates are 2% or less). Sorry but your advice is lacking here totally and you obviously don’t understand market dynamics with interest rates where Money Market Accounts are concerned.
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Slightly off topic but I’m one of those without a local bank account. When I needed something notarized I remembered I have a Bank of America Credit card so was able to visit a local BofA branch. Even without having any kind of deposit account or other loan, etc, I was able to obtain the free notary service for an affidavit.
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@mistercheap said in Question about banking:
@zerenia said in Question about banking:
@orthros I agree with your premise, but how often do you need those services? @studentsavings probably won’t need those services and if he does, he can open an account or join a credit union. Maybe even check credit unions for savings or interest-checking rates?
FWIW, as long as the bank is FDIC insured, the risk is relatively low. The bigger trend, though, is that the online banks offer teaser rates for a fixed period of time and then drops the bottom out of the interest the account pays. To keep the returns up, you have to keep switching banks.
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@zerenia Ally and Marcus have never offered teaser rates on their money market accounts to simply drop the bottom out on them. the rates plummeted this year due to the pandemic and the Fed offering 0% interest and US Treasury bonds paying next to nothing. You can’t expect the banks to pay out interest higher than the going rates on borrowing money. ( mortgage rates are 2% or less). Sorry but your advice is lacking here totally and you obviously don’t understand market dynamics with interest rates where Money Market Accounts are concerned.
Sir - I’m not going to make any assumptions about your knowledge of this particular topic. I would point out that my response was primarily regarding whether or not the extra services were worth keeping an account with a B&M bank. I would also suggest that your two examples of banks that have not used teaser rates are eclipsed by the dozens or more that have done so. Two examples is not a trend, sir.
My other point was that a credit union might offer a better return than an online account and still, perhaps, provide the services of a B&M institution.
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@orthros I largely agree with you. MM does V, but as you indicated, each individual’s needs will dictate what banking vehicle best fits that individual’s needs.
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@zerenia said in Question about banking:
@mistercheap said in Question about banking:
@zerenia said in Question about banking:
@orthros I agree with your premise, but how often do you need those services? @studentsavings probably won’t need those services and if he does, he can open an account or join a credit union. Maybe even check credit unions for savings or interest-checking rates?
FWIW, as long as the bank is FDIC insured, the risk is relatively low. The bigger trend, though, is that the online banks offer teaser rates for a fixed period of time and then drops the bottom out of the interest the account pays. To keep the returns up, you have to keep switching banks.
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@zerenia Ally and Marcus have never offered teaser rates on their money market accounts to simply drop the bottom out on them. the rates plummeted this year due to the pandemic and the Fed offering 0% interest and US Treasury bonds paying next to nothing. You can’t expect the banks to pay out interest higher than the going rates on borrowing money. ( mortgage rates are 2% or less). Sorry but your advice is lacking here totally and you obviously don’t understand market dynamics with interest rates where Money Market Accounts are concerned.
Sir - I’m not going to make any assumptions about your knowledge of this particular topic. I would point out that my response was primarily regarding whether or not the extra services were worth keeping an account with a B&M bank. I would also suggest that your two examples of banks that have not used teaser rates are eclipsed by the dozens or more that have done so. Two examples is not a trend, sir.
My other point was that a credit union might offer a better return than an online account and still, perhaps, provide the services of a B&M institution.
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the only offers I’ve seen are to attract ‘new money’ are either a one time bonus (ie, deposit $50K in new funds, earn $500 bonus when on deposit for 6 months on top of the regular interest rate) or a top up % bonus (ie, earn 5% on up to $10K for 90 days new money), either way, they are very clear in their terms and are to attract new customers, but they give full disclosure as to what is involved. After the time period is up you are free to withdraw or transfer funds elsewhere, but typically their ongoing interest rate is competitive with what other banks are paying.
I’d be curious to hear specific examples where there was some kind of ‘bait and switch’ where a customer wasn’t fully aware of the promotion for new money on deposit. I still do not consider a new customer offer with a bonus that is clearly spelled out bottoming their rate unless it was a smoke and mirrors type set up.
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@mistercheap In fairness I had to harangue Ally Bank to cough up the $$$ they owed me for a promotion, but otherwise their customer service has been sterling. Much better than B&M banks, honestly.
But just like there are certain advantages to retail B&M stores, there are advantages to bank ones. And as you point out, I am not aware of any online bait-and-switch interest rates. I’m sure they are somewhere but my experience has been non-existent.
To be clear: You can probably get 1/2% to maybe 3/4% more from an online bank at this point in time vs. a local savings/MM bank rate. As with all things financial, YMMV.
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@orthros said in Question about banking:
@mistercheap In fairness I had to harangue Ally Bank to cough up the $$$ they owed me for a promotion, but otherwise their customer service has been sterling. Much better than B&M banks, honestly.
But just like there are certain advantages to retail B&M stores, there are advantages to bank ones. And as you point out, I am not aware of any online bait-and-switch interest rates. I’m sure they are somewhere but my experience has been non-existent.
To be clear: You can probably get 1/2% to maybe 3/4% more from an online bank at this point in time vs. a local savings/MM bank rate. As with all things financial, YMMV.
Yeah, glitches happen, but I’m sure you understood the promo terms when you opened the account and knew that rate was for a finite period/new money, etc, yet after you were still paid a competitive interest rate compared to other banks. That is why I’m scratching my head with zerenia’s claims. I’m not sure exactly what examples he’s talking about, at least w/online banks.
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@mistercheap I also don’t understand.
@zerenia What bait-and-switch offers have you seen?
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@orthros said in Question about banking:
@mistercheap I also don’t understand.
@zerenia What bait-and-switch offers have you seen?
@orthros and @MISTERCHEAP I think I need to both apologize and clarify. Bait-and-switch was not a fair characterization of what I was trying to describe and came out of my own frustrations with online banks offering great rates only to ratchet those rates back after a period of time. Sometimes the rate was guaranteed for a certain amount of time (6 months or one year, for example), other times the rate changed with only a short notice. Sometimes, no notice. So, I apologize for confusing the discussion by using the term “bait-and-switch.”
Popular Online and Synchrony dropped my interest rates with no notice.
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@zerenia said in Question about banking:
@orthros said in Question about banking:
@mistercheap I also don’t understand.
@zerenia What bait-and-switch offers have you seen?
@orthros and @MISTERCHEAP I think I need to both apologize and clarify. Bait-and-switch was not a fair characterization of what I was trying to describe and came out of my own frustrations with online banks offering great rates only to ratchet those rates back after a period of time. Sometimes the rate was guaranteed for a certain amount of time (6 months or one year, for example), other times the rate changed with only a short notice. Sometimes, no notice. So, I apologize for confusing the discussion by using the term “bait-and-switch.”
Popular Online and Synchrony dropped my interest rates with no notice.
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@zerenia as for the ‘rate changed with short or no notice’, if this was tied to the drop in interest rates from the Fed, you will find that would be the case with just about all online rates. Granted, they don’t all drop rates in unison, but typically if one bank lowers their’s due to Fed rates dropping, it’s a matter of time before others follow suit. As long as the rate you are getting is competitive (even with the drop) with other banks on the same amount in the account, you can’t really be upset. Yes, you may see a 0.1-0-25% difference here and there, but for a small amount of difference, it’s likely the other bank will catch up to your rate soon enough. Not enough $$ lost to justify closing accounts and moving money to another bank
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@mistercheap said in Question about banking:
@zerenia said in Question about banking:
@orthros said in Question about banking:
@mistercheap I also don’t understand.
@zerenia What bait-and-switch offers have you seen?
@orthros and @MISTERCHEAP I think I need to both apologize and clarify. Bait-and-switch was not a fair characterization of what I was trying to describe and came out of my own frustrations with online banks offering great rates only to ratchet those rates back after a period of time. Sometimes the rate was guaranteed for a certain amount of time (6 months or one year, for example), other times the rate changed with only a short notice. Sometimes, no notice. So, I apologize for confusing the discussion by using the term “bait-and-switch.”
Popular Online and Synchrony dropped my interest rates with no notice.
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@zerenia as for the ‘rate changed with short or no notice’, if this was tied to the drop in interest rates from the Fed, you will find that would be the case with just about all online rates. Granted, they don’t all drop rates in unison, but typically if one bank lowers their’s due to Fed rates dropping, it’s a matter of time before others follow suit. As long as the rate you are getting is competitive (even with the drop) with other banks on the same amount in the account, you can’t really be upset. Yes, you may see a 0.1-0-25% difference here and there, but for a small amount of difference, it’s likely the other bank will catch up to your rate soon enough. Not enough $$ lost to justify closing accounts and moving money to another bank
@MISTERCHEAP Agreed. But it was quite competitive as the rates were rising. Accounts were approaching 2% and they were making that rate available for deposits as small as $500.
I’d still appreciate some better communications from the banks.
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