Why is INGDirect always trailing way behind HSBC and Emigrant as far as online savings rate increases?
As of July 1, 2006…
HSBCDirect @ 5.05%
EmigrantDirect @ 4.80%
INGDirect @ 4.35%
I currently have an INGDirect online savings account and Im very pleased with their customer service. But lets face it, %5.05 > %4.35. I dont want to be that person that has like 3 online accounts though. However, ING has a couple CD’s with %5.25 rates, and I have no problem messing with my money for an allocated amount of time. Is that a better alternative to opening another account with another online bank?
Banks don’t raise their interest rates just because… Banks use the money you deposit to make loans out to other people. Those loans may be credit cards, student loans, car loans or mortgages.
When a bank has more deposits than it needs, it will lower their interest rate, which in turn slows down future deposits. When a bank needs more deposits (let’s say the car loan business is getting very popular and they need more cash on hand to handle demand) they will raise interest rates to attact new clients or get their current depositors to deposit more cash!
This is kinda like when a store has too much candy after halloween and puts it on sale to reduce inventory quickly. They can manipulate the price to achieve the desired “demand”.
Some banks always have the best rates, as they may not have a lot of branches (convenience goes a long way too) and therefore need to generate deposits some other way, while other banks tie their interest rate (called their cost of funds) to the interest rate they are collected from their borrowers. As those rates rise, they may be willing to pay their depositors more (or keep the extra spread as profit).
There are other considerations, such as “Can the bank borrow money from other banks or the government at a lower interest rate than the depositors are demanding?” If so, they will borrow from them. So some banks may be in the business of lending to other banks (very little credit risk involved) and earn a tiny margin but deal in huge amounts of cash each day. Tiny margin might mean the bank pays (on average) 3% to their depositors and lends at 3.25% to other banks. Those other banks might be willing to pay depositors 5%, but if they can get funds from bank #1 at 3.25%, they will.
The reason the average is so low is that the average interest rate on saving and checking accounts are very very low, and commercial accounts (usually tens of thousands of dollars, or more) typically do not pay interest.