The Wall Street Journal-20080116-Banks Offer Bonuses to Lure Deposits to Saving Accounts
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Banks Offer Bonuses to Lure Deposits to Saving Accounts
Banks are offering bonuses to get customers to make deposits to their savings accounts more often.
Wachovia Corp. this month began offering a savings account, dubbed Way2Save, that pays a 5% annual yield for the first year, plus an additional 5% annual bonus on the account balance at the end of the first year. Washington Mutual Inc. is testing an account that pays as much as 6.5% if the customer agrees to deposit money regularly for 12 months.
The changes come as banks are scrambling for deposits by offering attractive rates, even as the Federal Reserve has been cutting interest rates.
The banks' programs are intended to make it easier for consumers to save small amounts over time. Bank of America Corp.'s Keep the Change program, which was started in October 2005, rounds up a customer's debit-card purchases to the next dollar and moves the difference into a savings or money-market savings account. The bank matches those contributions 100% for the first three months and pays 5% a year thereafter on transferred amounts.
Under Wachovia's program, a customer must link her Way2Save account to a Wachovia checking account. Each time the customer uses her debit card, makes an online bill payment or has funds automatically debited from her checking account, $1 is transferred from checking to savings. The customer can also opt to have as much as $100 a month transferred to the savings account.
Washington Mutual's Savings for Success pilot program is offered in four states, through branches. (Other banks' programs often can be opened online or in person.) The customer must agree to make monthly deposits of $25 to $500 over a 12-month period. The account yields 5.5% in Washington and 6.5% in Illinois, Georgia and Texas. Withdrawals before the end of 12 months trigger a penalty.
The accounts offer higher yields than traditional bank savings accounts, although they are on par with some of the high-yield certificates of deposit and online savings accounts that banks have offered in recent years. The average interest rate on traditional savings accounts is 0.43%, according to Bankrate.com.
One of the goals of Wachovia's and Bank of America's programs is to encourage customers to use their debit cards more frequently, since banks earn revenue on each transaction, industry analysts say. The programs also cost the banks less than do credit-card reward programs, which offer more-generous rewards, says Gwenn Bezard, a research director at Aite Group LLC. Although the annual yields on the savings accounts are high, he says, the banks' costs are limited by restrictions on the accounts.
Under Wachovia's program, for example, customers earn a 5% annual yield on deposits and a 5% bonus, up to $300, for the first year. The yield drops to 2% -- plus a 2% annual bonus, up to $300 -- in the second and third years. The maximum savings, excluding interest, that can be accumulated in Washington Mutual's account over the 12-month period is $6,000. Bank of America's Keep the Change program pays out a maximum annual match of $250 per account.
