January 15, 2005 07:39 AM
Online Banks Are Boosting Yields
Excerpt: Internet banks, sometimes called branchless banks, are able to offer higher rates on savings products because they don't have the fixed expenses of maintaining a network of branches. In recent years, many online banks have focused on offering savings accounts, leaving the business of managing checking accounts to the traditional banks, which have the infrastructure to support the complicated transactions involved.
As interest rates start to rise, many online banks have already started to offer higher yields on many accounts.
Traditional banks have been slower than their nimbler online counterparts to boost returns on many of their short-term cash-like investments. In recent weeks, many Internet banks have started to bump up yields on their savings accounts, certificates of deposits and money-market accounts. Just last week, Emigrant Savings Bank, a unit of Emigrant Bancorp in New York, launched an online division offering a 3% annual percentage yield on a savings account. Other banks such as ING Direct, a unit of ING Groep NV, and MetLife Bank, a unit of MetLife Inc., have raised savings yields as well since the Fed started raising the federal-funds rate -- the rate banks charge each other for overnight loans -- in June.
This week, UFB Direct -- the online division of Indianapolis-based Union Federal Bank, a unit of Waterfield Mortgage Co. -- raised yields on its high yield money-market savings account to 2.4% from 2.3%, while NetBank Inc., an Alpharetta, Ga., Internet bank, boosted yields on its money markets to a range of 2% to 2.3% from 1.9% to 2.2%.
Many of those yields are significantly above the national averages, which are currently 0.43% and 0.53% for savings accounts and money markets, respectively, notes Greg McBride, analyst at Bankrate.com. Average yields on CDs are slightly higher at 1.76% for six-month CDs and 2.12% for one-year CDs. Yields on money-market mutual funds, which tend to move up quickly in response to Fed's moves because the funds invest in short-term securities, are at about 1.64%, according to iMoneyNet Inc.
Internet banks, sometimes called branchless banks, are able to offer higher rates on savings products because they don't have the fixed expenses of maintaining a network of branches. In recent years, many online banks have focused on offering savings accounts, leaving the business of managing checking accounts to the traditional banks, which have the infrastructure to support the complicated transactions involved.
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