Archive for Savings Account
November 19, 2008 at 7:04 am · Filed under Savings Account
A new wave of savings accounts designed to address consumers’ alarm about growing debt and shrinking funds are drawing an audience, but observers say they also present some risks.
The accounts aim to make saving money easy, fun, rewarding, or some combination of the three. But consultants say that in rethinking the features and economics of the basic savings account, banks may weaken not only their trusted status with customers, but also the dependability of their biggest and most stable source of profit.
The new accounts offer all kinds of triggers for moving money automatically from checking into savings, as well as matching bonuses and goal-setting tools. With any luck, bankers say, the accounts will help usher in a new era of thrift while recasting banks as partners in lasting savings, as opposed to providers of easy credit.
“To the extent we can help consumers save, it’s good for them and good for the bank,” said Scott Peters, the chief marketing officer at Regions Financial Corp. “We benefit when we have customers on good, sound financial standing.”
The deposit business is the largest single revenue source in all of banking, bringing in about $75 billion annually, according to Oliver Wyman Group, a New York management consulting unit of Marsh & McLennan Cos.
Peter Carroll, a partner at Oliver Wyman, said rewarding customers $200 to $300 annually on low-value accounts, as some banks are doing through new savings plans, is an affront to the traditional business case behind taking deposits.
“It’s tremendously damaging to the profitability of the account, particularly in a product where people are not that price-sensitive to begin with,” he said.
Bankers say they have examined the profitability of the new accounts and expect them either to pay off or to act as loss leaders for expanded relationships built with customers over time.
Wachovia Corp. has been offering its Way2Save account since January. In the first year it pays an interest rate of 5%, as well as a bonus of up to $300, though the accounts are designed so that the balance would rarely exceed $6,000 over three years.
“The product itself for the first few years is not profitable,” said Kathryn Black, the Charlotte company’s savings director, but Wachovia, which has agreed to sell itself to Wells Fargo & Co., expects the accounts to anchor relationships that would expand over time.
Way2Save is automatically cross-sold with a checking account, and after three years account holders are expected to move on to more traditional deposit products, Ms. Black said. “The rest of the relationship should be very profitable.”
Some institutions are pairing a bonus with a relatively low base interest rate, creating an overall reward structure that is not so onerous to support.
“Some of these more innovative accounts are a way of competing without a focus on straight rates,” said Aaron Fine, a partner at Oliver Wyman.
Regions is paying a bonus of up to 1% on the average annual balance, or up to $250, for customers who sign up for automated transfers into its LifeGreen account. The base interest rate on the account is a mere 0.5%.
The account is designed to be profitable from the start, and the business case is sound, Mr. Peters said. “If you look at the APY, it’s still an extremely productive source of funds.”
Offering an interest rate bonus for automated transfers may not result in the best return for consumers, but these offers seem to be striking a deeper chord.
“Consumers don’t act in theoretically correct ways when it comes to the time value of money,” Mr. Carroll said. That concept, combined with the panicked state of many consumers in the current economy, has allowed bank marketers to “find another currency” for pitching accounts.
Bank of America Corp. helped spark the savings innovation trend in 2006 when it introduced its Keep the Change product, which automatically rounds each debit purchase up to the next whole dollar amount, sweeps the difference into a savings account, and matches the amount saved for the first three months.
The account has commanded the attention of competitors. More than 8 million people have signed up, and they have saved more than $10 billion, including over $1 billion from rounded-up purchases and matches from the Charlotte company.
But bankers may find it difficult to create accounts that resonate with debt-ridden consumers while avoiding costly traps.
“When banks are designing reward programs, they need to make sure that they don’t suffer from unintended consequences,” said James McCormick, the president of First Manhattan Consulting Group in New York.
One danger lies in overselling the ease with which rewards can be obtained and leaving customers feeling misled, Mr. McCormick said.
Fumbling the design of one of these high-profile accounts could put a bank’s reputation at stake, Mr. McCormick said. “Banks enjoy a very precious position as the most trusted of financial service providers. They shouldn’t undertake any actions that compromise that trust.”
Potential stumbles are evident in accounts already on the market. For example, consumers looking to boost their savings may be dismayed by the modest addition to their accounts after one year in B of A’s Keep the Change program. According to the company’s Web site, making 30 debit card purchases a month for a year on average would generate an additional $231.75 for the account.
Wachovia’s Way2Save was designed to help consumers save a more substantial sum of money, but some aspects of the account have earned demerits from observers.
“Many Wachovia customers drawn in by the advertising will go away disappointed due to the fine print,” Jim Bruene wrote in his NetBanker blog.
http://www.americanbanker.com/article.html?id=20081117LJB8EMNT&specialreportid=200811171FP1T04Y
November 17, 2008 at 7:36 am · Filed under Savings Account
THERE WASN’T a lot to get excited about in the last federal budget, chartered accountant Steve Moore admits, except for a small announcement about tax-free savings accounts, which he describes as “the jewel of the budget.”
The tax-free savings accounts, or TFSAs, are a new investment vehicle that goes into effect on Jan. 1.
While there are rumours the federal government may be considering further tax incentives for the new year as a way to stimulate the faltering economy, Moore, a tax partner in the Halifax office of KPMG, says he hasn’t yet heard what, if anything, the government may be contemplating.
But he says establishing the tax-free savings accounts may help to buoy the spirits of ordinary taxpayers. Such accounts will allow Canadians over 18 to earn investment income tax-free.
Contributions to a TFSA will not be tax-deductible but the investment income and capital gains earned on investments in the account will be tax-free. The principal and income earned on investments within the account may be withdrawn at any time without tax consequences.
I’m predicting that Canadians will soon become excited about making an annual contribution to a TFSA — an acronym that will become as familiar as RRSP, RRIF or RESP. Some banks have already started advertising TFSAs, even though no one can contribute to them yet.
The Canada Revenue Agency says people will be able to contribute up to $5,000 a year to a TFSA, and any unused contribution room may be carried forward indefinitely, so it is worthwhile opening an account even if you only have a minimal amount to put in at first.
Freedom is an important aspect of the tax-free savings accounts. People may make tax-free withdrawals from their TFSA at any time, and the amount withdrawn will be added to their contribution room for the following year.
Moore says KPMG has developed an example. If a person contributes $5,000 next January and decides to withdraw $4,000 in June, leaving only $1,000 in the account, they would not be able to deposit another $4,000 until the next year. But in 2010, the person would not only be able to deposit the $4,000 that had been withdrawn but would also have a new $5,000 limit for the new year, for a total allowable contribution of $9,000.
If you decide to withdraw everything from the account before the end of 2009, the rules allow you to put back the entire amount in 2010, along with the new $5,000 contribution limit, for a total of $10,000.
“In a similar vein,” KPMG says on its website, “if you invest your $5,000 TFSA contribution in the stock market and your share investment appreciates rapidly, to $20,000, for example, you could sell the shares and realize the $15,000 tax-free capital gain in the TFSA, withdraw the $20,000 cash proceeds and still be able to re-contribute the full $20,000 amount to the TFSA in addition to any other unused TFSA contribution room in the following year or later.”
The accounting firm recommends that contributors take their investments that are most likely to rise in value quickly and put them in a TFSA. But considering the state of the stock market today, that may not be an urgent issue for many of us.
http://thechronicleherald.ca/Business/1090690.html
November 8, 2008 at 2:51 am · Filed under Savings Account
The days of savers earning more than 7 per cent interest on fixed-rate bonds are over, after ICICI and Anglo Irish bank cut the rates on their top-paying deals.
ICICI, the Indian bank has long topped the best buy tables with its HiSave one-year bond paying 7.1 per cent. But responding to the Bank of England’s shock base rate cut to 3 per cent, it announced today that it would replace it with a deal paying 6.6 per cent.
Anglo-Irish Bank, which had an attractive fixed rate bond at 7.05 per cent interest for one year, has replaced this with a bond paying 5.55 per cent, mirroring the Bank of England’s one and a half percentage point cut. It has also repriced its savings accounts from 6.55 per cent down to 5.4 per cent for a seven day notice account and from 6.4 per cent to 5.25 per cent for an easy access account.
This brings to an end a period when returns on savings account reached seven-year highs as lender became increasingly reliant on consumer deposits to fund their mortgage book.
The Close Brothers’ Premium Gold account still pays a fixed rate of 7 per cent for one year but requires a minimum deposit of £10,000. The rate is only guaranteed on applications received before close of business on Monday.
Many attractive deals have already disappeared. Saga, the financial services provider for the over-50s, had a one-year fixed rate bond paying 6.85 per cent. The rate was cut today by 0.5 percentage points to 6.35 per cent. Its six-month bond still pays 6.9 per cent, although it is expected to be pulled on Monday.
Meanwhile, Bradford & Bingley, part of Spanish banking group Santander, has withdrawn all its fixed-rate bonds, which paid up to 6 per cent.
More cuts are expected over the weekend. Abbey, also part of Santander, said that it will slice the top rate on its one and two-year fixed rate bonds by one percentage point. Anyone who applies before the end of Sunday will lock into a rate of 6 per cent, before it drops to 5 per cent on Monday.
Top rates on tax-free Isas have also been tumbling. Northern Rock, the nationalised bank, pulled all its one, three and five year fixed-rate cash Isas paying 6 per cent today, without announcing what it would replace them with.
National Savings & Investment, also backed by the Government, cut the rate paid on its Direct Isa from 4.8 per cent to 3.3 per cent.
Bradford & Bingley’s fixed rate cash-Isa paying 6.25 per cent for one year is still available, but it is not expected to be around for long.
http://www.timesonline.co.uk/tol/money/savings/article5109154.ece
November 5, 2008 at 5:57 am · Filed under Savings Account
Amendment 59, which would have created a savings account to fund public schools in tough economic times, went down to defeat.
The measure had the support of numerous education, civic and business groups that joined to contribute more than $2.5 million to the campaign for the measure.
Opponents ran their campaign largely by distributing fliers and sending e-mails, charging that Amendment 59 was a tax hike.
Former state Rep. Penn Pfiffner, who ran one of two campaigns against the amendment, said opponents succeeded despite being outspent at least 250-to-1.
“The way we were able to succeed was by making clear to Colorado voters that this was a huge tax increase,” Pfiffner said.
Pfiffner said the campaign also convinced voters that Amendment 59 proponents were not disclosing the full effects of the measure.
House Speaker Andrew Romanoff, D-Denver, who led the campaign for the amendment, could not be reached for comment.
Rep. Douglas Bruce, R-Colorado Springs, who led another campaign against the proposal, said he will comment today.
Beverly Ingle, president of the Colorado Education Association, said the message that Amendment 59 was a tax increase came at a time when people are worried about the economy. The CEA supported Amendment 59.
“It (Amendment 59) was very difficult to understand and was on a very crowded ballot,” Ingle said.
It would have altered parts of two other parts of the (state) constitution that are not widely understood.
When people don’t understand a ballot item, they tend to reject it, Ingle said.
Amendment 59 would have funded the savings account for schools from money that otherwise would be returned to taxpayers as rebates under the Taxpayer’s Bill of Rights, adopted by voters in 1992.
TABOR limits the amount of money the state and local governments can take in. Revenue in excess of the cap must be returned.
It also would have altered a 2000 amendment that sets school funding levels.
In appearances around the state, Romanoff assured voters that Amendment 59 would not raise taxes.
He also said Amendment 59 does not eliminate the part of TABOR that requires state and local governments to seek voter approval for tax increases.
But Bruce, who wrote TABOR, argued that eliminating the rebates was a tax increase because the government will keep money that belongs to the taxpayers.
Bruce also disputed Romanoff’s claim that the amendment doesn’t eliminate the right to vote on tax increases.
Under current law, a vote is required for the government to retain rebate money.
http://www.rockymountainnews.com/news/2008/nov/05/savings-account-aimed-at-public-schools-defeated/
