How to Shop Banks to get Better Yields

After months of grappling with the financial crisis and government-ordered stress tests of their health, banks are emerging from the chaos determined to win new business. On the East Coast, TD Bank treated potential customers to pizzas and Citizens Bank is promising to kick in $1,000 to families saving for college. In Oklahoma, the tiny Bank of the Wichitas started an online division with a target audience and catchy slogan: Redneck Bank, ?Where bankin?s funner.?

Banks can?t afford to jeopardize their health by offering deals too far out of line with the near-zero percent interest rate target set by the Federal Reserve. That helps explain why their perks often come with strings attached. Citizens Bank will kick in that $1,000 for college savings only if you deposit at least $25 a month for a child age 6 or under until he or she is 18 ? at a recent interest rate of just 3 to .5 percent. HSBC recently gave away Amazon Kindle 2 portable book readers, but only to customers depositing $50,000 in a new account and keeping a combined balance of $100,000.

Still, some banks are willing to pay decent interest rates to grab new customers ? you just have to play detective to find them. Making sense of it all, whether it?s the fine print in a giveaway or the best yield on a savings account, can be daunting. Here?s a guide to sorting it out.


Bank of the Wichitas has just four branches, all of them in Oklahoma. But thousands of folks outside the Sooner State have flocked to its Redneck Bank online unit. ?Our target market is people with a sense of humor,? says Wade Huckabay, a bank director and third-generation banker who came up with the name.

Bank of the Wichitas is a hit for more than its unconventional online bank. It?s one of hundreds of small banks and credit unions with ?rewards? checking accounts yielding 4 percent or more. Those kinds of rates are often double the national average, and they?re not just ?teaser rates.? Most of the banks offering these rates have maintained them for over a year, says Gabriel Krajicek, CEO of BancVue, a firm that runs rewards-checking programs for community banks around the country.

Small banks have been losing market share to large banks for years, so offering high rates is one obvious way to pull in new customers who might step up and buy other services. But the deals come with a catch: The banks generally require account holders to make at least 10 debit-card transactions in a billing cycle, receive statements electronically and sign up for direct deposit or automatic bill payments. People with large nest eggs will find that small banks live up to their names in another way: They often cap the amount that can earn the high yield at $25,000 to $50,000. (It?s $10,000 at Bank of the Wichitas.)

Bankers also count on customers who flub up ? not making enough debit charges to qualify for the bonus rate. At Southern Bank in Missouri, about 80 percent of account holders make their quotas to qualify for the high yield (currently 5 percent), says Matt Funke, chief financial officer. The rest earn .1 percent no matter how much they have on deposit, helping to make the accounts overall ?quite profitable? for the bank, Funke says.

Tip: The site lists top rates nationwide. To get around limits on the amount of money that can earn top rates, some customers distribute their funds to different banks.


Online banks burst onto the scene a few years ago with colorful, funky Web sites and savings yields that crushed their brick-and-mortar cousins. Although they still hold less than 4 percent of total retail deposits of $4.2 trillion, the deposits have grown to $163 billion, from less than $2 billion in 2000, according to the TowerGroup, a financial-services research firm. And they?re increasing consumer deposits at a 23 percent annual clip ? four times the rate of traditional banks. Even regional banks like First National Bank of Omaha have gotten into the game. Its FNBO Direct unit has attracted 71,000 accounts and $1.3 billion in deposits since starting up just two years ago.

Does that make them a good deal? That depends. You can usually find a slightly better rate online, especially at one of the Internet-only banks that don?t have to pay tellers or other branch expenses and can pass on the savings. But the gap has narrowed as Internet banks have started to focus more on profitability than growth. ?We?re getting as much money as we need,? says James Kelly, chief operating officer of ING Direct, the largest online-only bank, explaining why ING?s rates aren?t higher. Indeed, ING is now trying to get customers to branch out from basic savings to other services such as checking accounts and mortgages.

There?s only so much banking you can do with the click of a mouse, though. Most online-only banks have limited services, so you have to go elsewhere for extras like lines of credit or auto loans. Firms like ING Direct and Discover Bank don?t have their own ATMs, and customers may be charged fees if they want to withdraw cash from another bank?s ATM. Cashing a check can also be a hassle with a branchless bank. Customers either have to go through a traditional bank or mail in the check.

Tip: Finance and credit card companies with online divisions often offer higher yields than traditional banks on certificates of deposit and savings accounts. Note to jittery savers: The Federal Deposit Insurance Corp. insures deposits up to $250,000, up from the previous $100,000.


While big banks may ace the convenience test, they aren?t usually the place to go for the highest yields ? as we discovered when we went yield shopping in New York City. At a Chase branch, a ?personal banker? named Robin gave us her best offer: 1.75 percent on a one-year CD. ?We want your business,? she assured us, but she wouldn?t budge on the rate, which, like other big banks, was below the national average, which is now 2 percent. (A Chase spokesperson says the bank?s rates are competitive in its local markets.) At Wachovia, though, a young banker named John had a suggestion: Set up a ?Way2Save? account, and earn 7.8 percent on up to $6,000. The catch: It only lasts for a year, and we?d have to open five separate checking accounts and have $100 automatically transferred from each on a monthly basis. ?You have to get creative,? he said.

The latest merger mania ? with Wells Fargo swallowing Wachovia, and JPMorgan Chase taking over Washington Mutual ? left Wells Fargo, JPMorgan Chase and Bank of America in control of more than 30 percent of the nation?s deposits, according to SNL Financial. And while they want your business, they?re now ?swimming in deposits,? says analyst Greg McBride, making them less inclined to offer the best rates.

Banking with the giants does have some advantages, of course. Folks who travel or move around a lot may appreciate those ubiquitous ATMs. The big banks have also spiffed up their Web sites to make it easier than ever to pay bills online, track expenses and link accounts to a mobile device such as an iPhone. And customers can swing deals if they keep it all in the family. Virtually all the big banks offer discounts on safe-deposit boxes if you open a checking account, for instance, and they?re pushing debit cards with cash back and ?rewards? points that can be redeemed at major retailers.

Tip: Some banks offer online specials not found in their branches. HSBC recently offered a 2 percent yield on a one-year CD online. Get that CD at the branch and you?d earn .55 percent.


Don?t recognize the new name of your bank? After a spate of mega-bank rescues and mergers in the past year, expect to see changes at your local branch. A look at the shifting landscape:

OLD: Commerce Bank (470 branches)

NEW: TD Bank (1,100 U.S. branches)

THE STRATEGY: Holding on to popular gimmicks, like allowing pets and offering free coin-counting machines in the lobby.

OLD: Washington Mutual (2,207 branches)

NEW: Chase (5,186 U.S. branches)

THE STRATEGY: Owner JPMorgan Chase is returning to a traditional branch model for the former WaMu branches. In: bulletproof teller windows. Out: WaMu signs promising ?free checking, free smiles.?

OLD: Sovereign Bank (750 branches)

NEW: Banco Santander (758 U.S. branches)

THE STRATEGY: Revving up marketing to emphasize the safety and global reach of Spain?s largest bank.

OLD: Wachovia (3,300 branches)

NEW: Wells Fargo (6,610 U.S. branches)

THE STRATEGY: Converting Wachovia branches to the Wells Fargo brand and ?cross-selling? more products like home loans and mutual funds.

Copyright 2009 The New York Times Syndicate