Banks Sweeten Perks for New Depositors
Jane J. Kim
Mar 14, 2006
Under pressure to boost profitability, banks are rolling out some of the most attractive promotions in years to entice new customers to open checking accounts.
Banks are struggling with tough industry conditions, and Sunday's agreement by Capital One Financial Corp. to acquire North Fork Bancorp for $14.6 billion was to a large degree prompted by these pressures. Profits are being squeezed by a tricky interest-rate environment, which in turn has heated up competition among banks to attract low-cost deposits, such as checking accounts.
But even as banks reward consumers for opening new accounts, many are raising certain fees on those accounts, making it more expensive for customers who inadvertently bounce a check, use another bank's ATM or request services outside of a standard menu. The changes mean that consumers should carefully review the rules of the new accounts to avoid incurring higher penalties. Moreover, consumers considering taking advantage of one of the new offers should check first with their existing bank, some of which have begun offering rewards for staying put.
This week, Bank of New York Co. is launching a promotion offering customers as much as $200 cash back -- the bank's highest ever -- for opening checking accounts. National City Corp. is paying between $50 and $150 in markets such as St. Louis and Chicago to select customers. SunTrust Banks Inc. is offering $50 gift cards to new customers.
Other banks are upgrading their packages. Yesterday, Washington Mutual Inc. enhanced its free checking-account package for new customers by eliminating automated teller machine fees for customers who get cash at competitors' ATMs, and offering other perks such as lifetime supplies of free checks.
Banks have lured new customers before, with such products as checking accounts that come with few or no fees. But now, many are intensifying their efforts as profits come under pressure. Deposit growth is slowing, as customers invest cash in potentially higher-paying alternatives such as the stock market, and banks are struggling to contain expenses after a rash of branch building in recent years. Meanwhile, a flat yield curve -- the difference between short and long-term interest rates -- is making lending less lucrative for banks, which typically make money by taking short-term deposits and lending them for longer periods at higher rates.
As a result, checking deposits, which represent a low-cost source of funding because banks pay little or no interest on these accounts, have become increasingly valuable. BankAtlantic Bancorp Inc. says it has seen success from this strategy. The Fort Lauderdale bank boosted its net interest margins, a measure of profitability, to 4.05% last quarter from 3.61% in 2001 by increasing its low-cost deposits from $600 million to $2 billion in the same period, says President Jarett Levan. BankAtlantic is currently offering new checking-account customers a $77 gift card and a milkshake maker.
Some banks are changing the way employees are paid to spur them to bring in more deposits. BB&T Corp., a Winston-Salem, N.C., bank, recently hired "business-deposit specialists" to work with bank officers in managing deposit portfolios and increased the compensation employees receive for garnering more checking accounts. The bank rolled out a new advertising campaign geared in part to increasing deposits this week.
At the same time banks are offering new awards, they also are seeking to boost revenue by raising costs for customers who violate terms of their account agreement, such as falling below minimum-balance requirements or bouncing checks. Those who request services beyond a standard menu may also be hit with higher fees.
PNC Bank, a unit of PNC Financial Services Group Inc., is in the process of implementing new service charges as part of its "One PNC" cost-cutting and efficiency program. Among other recent changes, customers now have to pay a fee to get account statements at ATMs; others may be charged if customer-service representatives assist them with transferring money between accounts. In May, free-checking accounts will be converted to regular checking accounts, which carry a monthly service charge, if there is no customer activity for more than six months. "Most of our customers will see little or no impact because if you're in the right account and you keep track of your balances and spending, you won't be paying fees on a daily basis," says a PNC spokesman.
Banks are also raising ATM fees, making it more expensive for customers who use ATMs outside a bank's own network. Earlier this year, Wells Fargo & Co. raised fees in parts of California to $2 from $1.50 for noncustomers who use their ATMs. In November, Washington Mutual eliminated a long-standing program and began charging noncustomers to use the bank's ATMs. Indeed, the average fee for using an ATM at a bank where you don't have an account rose to a record $2.91 last year, according to a semiannual survey of bank fees by Bankrate.com.
Banks have long charged fees and penalties for various "extra" services or violations, but analysts expect such charges are beginning to accelerate because of profit pressures. In particular, they say, so-called nuisance fees, such as on bounced checks, are more likely to rise, while banks will try to hold the line on monthly maintenance fees, which consumers are more sensitive to.
Later this week, Commerce Bank, a unit of Commerce Bancorp Inc., will raise its overdraft and stop-payment fees, while Bank of New York plans to increase its insufficient-funds fees in April. U.S. Bancorp of Minneapolis last month raised many overdraft fees in some markets by $1 and certain returned-check fees by $3.
A growing number of banks are adopting tiered-rate structures that charge a lower penalty for first-time occurrences but quickly ramp up the costs for repeat offenses. Wachovia Corp. last month began charging $25 for a first overdraft, and $30 and more for subsequent occurrences. Previously, the bank charged a flat fee of $30 for each overdraft. Banks say they changed their pricing to be in line with their competitors and to charge a lower fee for those who only overdraw their accounts once.
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