Web-Only Banks' CD Rates Pressure Bigger Online Rivals: PNC, Wells Stress Their Service Advantage

By Ackermann, Matt | American Banker, September 1, 2000 | Go to article overview

Web-Only Banks' CD Rates Pressure Bigger Online Rivals: PNC, Wells Stress Their Service Advantage


Ackermann, Matt, American Banker


Big banks are scrambling to meet a challenge from Internet-only institutions that offer much higher certificate of deposit rates.

"Banks are paying close attention to what is happening to CD rates online, and they are doing everything they can to adjust their rates and adjust their services in order to stay attractive," said Sherri Neasham, chief executive officer of Financenter.com.

The Tucson, Ariz., research firm this week released a survey of 35 lending institutions that underscores the gap between rates offered online by Internet-only banks and those at traditional banks.

With rates on 12-month CDs that lag behind the Internet banks' by an average of more than three-eighths of a percentage point, the old-line banks are touting their broader offerings of investment products and using gimmicks like online CD auctions to lure customers, Ms. Neasham said. "This is a real scare to banks. If people buy their investments online, this is going to affect deposits at a bank, and that will affect their loan business."

The survey said that four of the five institutions offering the best returns on 12-month CDs -- 7.25% -- are Internet banks.

The exception is Flagstar Bank, a thrift institution in Bloomfield Hills, Mich., that only offers the CDs online. Online specialists NetBank of Atlanta; Umbrella Bank, Milwaukee; G&L Internet Bank, Pensacola, Fla; and E-Trade Bank, Arlington, Va., also offer the top rate, which is more than double the 3.25% return offered on the same investment by Atlanta's SunTrust Bank.

PNC Financial Services Group Inc. of Pittsburgh, which offer a 5.11% rate of return on its site, competes on service, by cross-selling products and by offering CD auctions, a company spokesman said. The auctions -- also offered on the Web sites of FleetBoston Financial Corp. and USABancshares let customers bid for federally insured certificates starting at a 10% yield. …

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