More on high-yield online savings accounts
Posted by Trey Reeme on April 10th, 2006
On the Payments News blog today, check out their US Online Banking Customer Base Nears 40 Million post quoting from a comScore Networks press release.
It’s full of juicy stats and includes a good discussion of high-yield online savings accounts similar to those offered by Citi, ING Direct, and Sunmark Credit Union (which is at an amazing 5.00% APY as of today). About the catch-22 financial institutions face:
The high-yield savings marketplace is a growing segment within the banking community. As high-yield savings accounts continue to change the face of online banking, financial institutions are confronted with the decision of whether or not to enter this category. High-yield savings accounts are attracting many satisfied customers, but the comScore study found that satisfaction is driven in large part by the high rate itself. Traditional banks are faced with the choice of watching deposits migrate to other institutions, or confronting the possibility of cannibalizing their own existing, lower rate deposits if they launch high-yield savings accounts.
I think that’s exactly the issue: you will cannibalize your existing deposits, BUT will you attract enough in new deposits to make the product worthwhile.
Perhaps CUs can look at how many of their members are active in making transfers into/out of ING, etc. (ACH data) – to see what potential they might have to retain deposits from current members with this type of product? A consideration, perhaps.
Looks like Callahan & Assoc. is going to gather some member data on the use of “online only” savings accounts – in their next online member survey for the CUs that participate in their Survey Consortium. It will be interesting to see the results!
This is an all-call to Scott Patterson! Hook us up with some results here! ;)
One more question on Sunmark Federal CU’s offering: Why open it as a separate entity (RateEdge.com)... Why not just an online only account (open only online – not in lobby perhaps) – and allow online transfers, from existing shares to fund the account?
Quick look at our data from the Callahan survey -> 85% of respondants indicated that they did not currently have an “online only” savings account (like ING Direct, Netbank, etc.)
Perhaps this threat hasn’t yet reached our market…
V – Thanks so much for sharing!
When reading your comment, I immediately thought about a UW E-Business Consortium study from last year that showed online members are most valuable for CUs. If you’ve never seen this PDF, please please print it out and uncap a new highlighter! It provided blog fodder for my very first OSCU post.
15% may sound like a low number, but how much profit potential (and word-of-mouth-spread-the-love potential) does that 15% offer compared to the other 85%? :)
You’ve gotta read this Bank Technology News article called Web Banking: Europe’s ING Direct Bucks U.S. Tradition (thanks Doug True’s Lending blog) where an ING spokesperson explains, “This isn’t hot money. These are systematic savers with $10,000 in their accounts who keep adding to it … It’s a very loyal group.”
The article gets really hot where it says, “The formula seems to be working. Fully 25 percent of ING Direct’s customers have chosen to opt-in to marketing pitches. More importantly, they’re willing to recommend ING Direct to their friends. Kuhlmann says 38 percent of the company’s customers come from referrals. ‘The marketing approach is almost viral,’ says George Tubin, an analyst with TowerGroup.”
Ok, back to credit-union-land! I’d argue that the demographics that are attracted most to online-only accounts (I’d bet Gens X and Y over boomers and seniors) are the ones that credit unions have the most trouble reaching.
Maybe, and please don’t be offended by this, the threat hasn’t reached the credit union market because the credit union market isn’t reaching into this territory. Looking at the size of ING, ETRADE Bank, HSBC, et al and considering the moves by traditional banks like CITI into this space, there’s certainly a market – but you’re right, there’s only a 15% overlap with your existing members; potential members may be another story.
If I have my savings account at ING getting me 4.00%, would I maintain my share savings at my credit union at 1.00%?
Now a question for you – do you have data on the amounts transferred from credit union accounts into online-only accounts?
Running the numbers through my head below (Imagine me in a Fred Sanford voice saying, “Carry the nine. Divide the remainder by two. Move the decimal three places.”):
For a credit union with a nice round 50,000 members … say 10% of them transfer into ING-type savings accounts equals 5,000 members … ING boasts an over $10,000 balance per savings account (according to that recent WSJ article cited by the Bank Deals blog).
At a hypothetical CU of 50,000 members, that’d be $50,000,000 in member deposits being held in online-only accounts instead of at the credit union (assuming that average ING account size is also a good estimate of what’s being held with other online banks).
I’m fully expecting someone (don’t feel bad if it’s you, V, either) to call these numbers absurd and to call me a fool. Thus, I’m compelled to give another disclaimer: this is rough, dirty math. Do not rely on my wild speculation for any decision-making. I need hard data!
And data we will soon have, as I’ve been put in touch with a contact at Callahan & Associates, who says the results should be available via their website next month. Expect to see the data and even a discussion on credit union barriers to entry available from Callahan soon.
V—On your April 14 question about Sunmark’s reason for offering the online account as a separate entity, the credit union’s Susan Siegel told Credit Union Management magazine that, “We pride ourselves in knowing our members, which is difficult to do with an electronic-only account. We didn’t want to set the expectation of Sunmark service” for people signing up for RateEdge. She also explained that the CU established the account so people not close to a physical branch would have a way to fill their deposit needs, similar to the way distant members can apply for a loan via the Web. These remarks appeared on p.62 of the March Credit Union Management.
Mary, Thanks for pointing to the article in March issue of Credit Union Management – makes perfect sense and kudos to Sunmark for getting it right.
For anyone who doesn’t keep up with the CUES Skybox blog, you should! You’ve always great posts from great writers up there, Mary!
whos the best online saving bank to go with? ING?
Cris, This is a few months outdated but it compares some of the big players in online savings. Might be worth a look -
Thanks for commenting!