Monday, September 8, 2008

Banks save their best rates for electronic accounts

In the midst of low interest rates and dismal stock market returns, it's still possible to get money from your bank.

Banks are increasingly offering higher interest rates and other perks to customers who agree to handle most of their banking electronically.

Those willing to meet the strict requirements of the account — getting electronic statements instead of paper and using the bank's check card frequently, for example — stand to earn interest as high as 5 percent.

F&M Bank's smart e-checking, which was rolled out in the spring, pays 5.02 percent annual percentage yield on balances up to $50,000.

Similarly, Renasant Bank increased its interest rate this week from 4.26 percent APY to 5.01 percent APY on its Rewards checking account.

"With the competition going on, especially here in Nashville, that was really the threshold to get some attention,'' said Renasant Bank's marketing communications manager, Stratton Huggins.

Banks are finding they can save money if customers handle banking online, plus they can reduce turnover, and capture more money from check card purchases, said Amy Rozelle, the marketing director for BancVue, a company that helps community banks and credit unions set up and manage such accounts.

Rozelle said the company has 400 financial institutions offering the account, up from 150 a year ago. The banks most likely to offer the accounts are smaller institutions seeking more deposits.

Banks have offered high interest checking for a long time, but mostly to customers who carry high balances. Nowadays, smaller community banks are offering the checking accounts to almost everyone, as long as they meet the electronic requirements of the account.

"The cost of the deposits is significantly less,'' she said, adding that her company estimates the average profit from such an (electronic) account is $450 per year, compared with $200 per year for a regular checking account.

Banks pay ATM fees

To make the accounts more attractive, smaller banks in many cases are offering to pay the ATM fees imposed by other banks on ATM transactions.

Typical requirements include e-statements and 10 check card transactions per statement cycle. Plus, customers often have to use online banking or bill pay and have at least one direct deposit per month to qualify for the high interest. If a customer doesn't meet the requirements one month, the account makes less interest that month.

"Really, these are things that customers who access online banking do anyway,'' Huggins said.

The benefit to the bank is clear. The average check card transaction generates 31 cents in income for the bank, paid for by the merchant, Rozelle said.

"Interest rate gyrations can really impact the (bank's) bottom line,'' said Greg McBride, the senior financial analyst for personal finance Web site "But one way banks can mitigate that is non-interest income. The more often you use the debit card, the greater insulation from volatile interest rates."

Rate has dropped

Lexington, Tenn.-based FirstBank started offering its First Rewards checking account almost two years ago, when interest rates were higher and the bank offered 6 percent APY. The account now pays 4.07 percent APY on up to $25,000.

Somewhere between 10 percent and 20 percent of the bank's customers are using the account, said Suzanne Reed, marketing director for FirstBank, which has 45 branches in the state. Plus, customers can use any ATM for free.

Even bigger banks are trying to push electronic banking.

Regions Bank recently began a new LifeGreen checking and savings account and promoted it as a way to benefit the environment and save more. The bank is giving away a reusable grocery tote bag to customers who sign up while supplies last. Customers get charged a monthly fee if they don't meet certain requirements of the account, but can get a 1 percent bonus at the end of the year based on the average monthly balance of the savings account.

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