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Why banks want your business

February 24, 2011

By Jim Sloan | Money Rates Columnist

If it seems like banks are suddenly more interested in having you as a customer, you're right.

The largest banks in the U.S. are actively recruiting new customers with various offers, such as high-interest savings accounts and Visa gift cards for keeping $1,000 in a money market account for year. According to the Wall Street Journal, banks mailed out more than 75 million savings account offers in the last three months of 2010, a 22 percent increase in offers from the same period a year ago.

The best interest rates on savings accounts being offered are 0.25 percent higher than earlier this year, and are often tied to opening a checking account.

Why banks want more depositors

The rush for new customers is in anticipation of interest rates on loans going up. Rates on deposits don't climb as fast as loan interest rates, so banks are hoping to profit from the disparity between what they are paying customers and what customers are paying for their loans.

While savings accounts are often the lure, the banks are mostly interesting in getting your checking account business. You're less like to leave the bank you have a checking account, so banks are eager to coax you away from a competitor so you will settle in with them. One way they are doing that is with cash rewards for new checking customer; those offers increased 16 percent from a year ago to an average of $138, the Journal said.

The best deals are going to customers who consolidate all their accounts under one roof. According to Market Rates Insight, so-called "relationship products"--such as offering better interest rates to customers with many accounts in one bank--accounted for 31 percent of all bank offers earlier this year.

Here are some the deals customers are taking advantage of:

  • PNC Financial Services Group Inc.'s PNC Bank is offering customers a $100 reward for opening up a checking account with direct deposit. Other banks are offering similar deals--some with even larger cash back deals--for new accounts and a minimum number of debit card withdrawals.
  • Higher CD rates. In some cases, customers with multiple accounts in one bank can earn a full percentage point more on CDs and money market account rates.
  • U.S. Bank customers who set up a monthly transfer from a checking to savings account get a $50 gift card, and if you maintain a minimum balance of $1,000 for at least a year, you get another one.

Competition from brokerages increasing

Banks are also fending off advances by brokerage firms and online banks into the checking account and bank deposit market. Charles Schwab and Fidelity Investments are among several brokerage firms that have rolled out checking accounts, forcing banks like Bank of America to reduce interest rates on jumbo mortgages and to offer investment services of their own in order to keep their checking account customers.

Despite the great savings rates and gift cards, it pays to read the fine print. Most banks are rolling out new fees for checking accounts this year, so make sure you know exactly how much they are charging and what you have to do in order to avoid the fees.

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