Mainstream Media Catching on to Raging Bank Rate War

Rate information contained on this page may have changed. Please find latest savings rates.

The mainstream press is catching on to something we've been writing about for some time, namely that banks are being forced to keep their rates high to prevent runs and to rebuild liquidity.

The Wall Street Journal published an article today entitled Banks Wage Rate War for Deposit (subscription required).

For those of you who read BestCashCow, the article won't come as a surprise.  It discusses how banks, strapped for deposits and fighting to maintain liquidity and prevent bank runs have had to raise rates to keep and attract deposit dollars, your dollars.  Past BestCashCow articles on this include:

From the WSJ article:

"Banks covet deposits because of this year's failures of IndyMac Bank, Washington Mutual Inc.'s banking operations and other institutions. Bank executives have been rattled by those seizures and the woes of beleaguered banks such as Wachovia Corp. and National City Corp., from which panicky customers yanked their money. Many lenders are now ratcheting up rates to shore up their deposits."

And:

"The desire to lure depositors is triggering a "national price war," says Michael Poulos, a partner at financial-services consulting firm Oliver Wyman. "In the past 15 years, there's been nothing like this. The level of competitive intensity is unprecedented right now."

Even though rates have held up well despite cuts in the Fed Funds Rate, BestCashCow data shows that they may have peaked and have declined from their high.  Whether they continue to decline depends on whether the Fed cuts rates further and how much additional stress banks face in the next six months.  

Below is an analysis of savings account rates compared to Certificates of Deposit.

Savings and CD Rate Analysis

Even if they do decline, I still expect that we'll see a premium over the Fed Funds rate for some time.  The collapse of Wall Street is the collapse of a financial model that generated lots of cheap capital and liquidity.  It fueled enormous bank and financial profits.  But the model has been proven faulty and as banks go back to the basics - borrowing from consumers and lending out their money - they are going to have to pay more for our money.  

Now, we'll see how long it takes for banks to begin offering toasters, televisions, and trips to Florida to get your cash.  There is now more competition than ever for your money, and on BestCashCow we think that's a good thing.  Make sure you are getting the highest rate


E Loan Offering $25 to Open Online Savings Plus Account

Rate information contained on this page may have changed. Please find latest savings rates.

E Loan is offering a $25 bonus for opening an online savings account.

E Loan is offering a $25 bonus for opening their Savings Plus online account.  To get the $25 you must use the promotion code "plus25" on the application and submitted before to December 18th, 2008.  You must also deposit a minimum of $100 into the account and keep at least that balance for at least 60 days.  That's a pretty low requirement. 

Savings Plus accounts come with an interesting condition though.  You must contribute a regular minimum amount each month in order to receive their highest rates.  The minimum contribution is $100. 

The rates on the Savings Plus account are pretty competitive.  For balances between 10,000 and 24,999, the APY is 3.35%.  The more money you deposit, the more you'll earn.

$100,000 or Greater 3.85%
$50,000 to $99,999.99 3.75%
$25,000 to $49,999.99 3.51%

$10,000 to $24,999.99

These rates compare to a top rate on the BestCashCow savings and money market rate table of 4% APY and a balance requirement of $1. 

E-Loan is owned by Banco Popular North America and has a Bauer rating of 3 out of 5 stars.  As with any bank, we advise you keep your deposit amount under FDIC  limits.


Does Opening a Savings, CD, or Checking Account Impact on Your Credit Score?

Does Opening a Savings, CD, or Checking Account Impact on Your Credit Score?

Rate information contained on this page may have changed. Please find latest savings rates.

We’ve all heard stories about how applying for many savings or cd accounts can have an adverse impact on your credit score. According to conventional wisdom, some banks do a hard pull on your credit and these pulls can cause your score to go down, impacting your ability to get a loan or the rate on any loan you open.

So is this really true? What do banks do when you open a savings account, checking account, certificate of deposit, or other FDIC insured account? And how do the credit agencies track what the banks do and apply it to your credit score?

To find out what really happens when you open an account, I spoke to representatives from Experian, Transunion, and Equifax (the big three credit rating agencies), as well as from Fair Isaac, the company whose algorithms are used to calculate your FICO score. Most banks use FICO scores as an important component in determining a potential borrower’s credit worthiness for a loan.

Maxine Sweet, the Vice President of Public Education at Experian explained how Experian records account openings: 

  • Checking Accounts (DDAs) - Banks have the option of doing a hard pull or a soft pull. Banks need to use a code in their account opening system if they want the pull to be soft.      Once overdraft protection or a debit/check card is added it will automatically be a hard pull.
  • Saving and Money Market Accounts and Certificates of Deposit. These always result in hard pulls. 

Steve Katz from Transunion wrote that whether or not they do a credit check “…really  depends on a financial institution’s specific credit policies. Some may pull credit reports for CD’s and savings accounts which would then show as a hard inquiry. Most do not engage in that practice at this time.

Some financial institutions may seek to offer the consumer a credit card or other pre-approved offer of credit in conjunction with the new account. Inquiries for such a permissible purpose would result in only a soft inquiry that has no impact on a consumer’s credit score.”

According to Ms. Sweet, the impact of even a hard pull from this type of inquiry is minimal and short lasting, unless the consumer is already having credit problems. In that case, it becomes another flag that there is something going on and can have a more significant impact on your report. These types of inquiries last about 3 months and then disappear entirely from your credit report. 

Ms. Sweet recommended that if you are thinking of applying for a mortgage or a car loan, you not go on an account opening binge in the 3 months prior to applying for the loan.   

Craig Watts, Public Affairs Manager for Fair Isaac said that if the savings or CD account is a “hard pull” then the inquiry would be listed on the FICO report and it could have a impact on your FICO score. He said the impact might be a 5 point decrease in your credit score. The impact to a young credit file, that is someone who has just started to build their credit history, might be more significant. Regardless, he stated a string of late payments on credit cards would have far more impact than a string of inquiries from opening savings accounts.  

His advice to consumers is to check your credit report, be diligent in managing credit, and mind your Ps and Qs so you don’t have to worry about minor impacts from things like opening a savings account or a certificate of deposit. 

Conclusion

  • Opening a checking account may or may not have an impact on your credit score, depending on the bank and the credit agency they use. If the account comes with overdraft protection or a check card, assume it will result in a hard pull.
  • You can ask the customer service rep or the branch customer service personnel but they may not even understand their bank’s policies. Many do not.
  • If a hard pull is done the impact on your credit score varies depending on your other credit history, and your credit age.
  • If you have other bad marks on your credit score and are thinking of applying for a major loan (home, car, etc.) you might not want to open a slew of new accounts.
  • Any impact on your credit score from opening a savings account, certificate of deposit, or money market account is minimal if you have good credit.