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Exclusive: 2008 CD Study Author:Judy Martel Date:03/25/14 Click:

When it comes to finding the highest annual percentage yield, or APY, for your savings, it pays to shop around. But consumers have a wide choice among brick-and-mortar banks, as well as online, so take into account factors besides yield. For instance, the convenience of a local branch that doesn't charge to use its ATM might make up for a lower yield.

Bankrate gathered information from 10 of the largest banks that offer both in-branch and online products and compared the APY for savings accounts, money market accounts, six-month CDs and one-year CDs.

Here's what Bankrate found.

In-branch versus online bank offerings:

    * Shop around for the best APY. At many of the banks, the online APY was much higher for the same product offered in a branch. Because different banks offer various yields, be sure to cast a wide search net.
    * Yield is not everything. For customers who want convenience, it might make sense to have a checking account at the branch and an online relationship for longer-term investments.
    * Not all banks need to compete on rate or number of deposits, so in those cases, online APY is the same as it is in-branch.

Why the difference in yields?

Greg McBride, CFA, Bankrate's senior financial analyst, says that banks offering higher online yields can do it because they have lower overhead costs, and those lower costs are passed on to the customer.

"It's more cost-effective for banks to offer online CDs, pay an attractive yield and bring a lot of deposit money with very little overhead than it is to build branches," he says. "Online offers a lot of scale, and banks can get a lot of deposits with very little overhead."

For example, Citibank's in-branch savings account yields an APY of 0.70 percent, while its online version offers 3.25 percent. The six-month and one-year CD rates are the same in-branch as they are online.

At Washington Mutual, the in-branch savings account has an APY of 0.25 percent, and online it offers a whopping 4.25 percent. The CD rates are higher online, too, with in-branch APY on a six-month CD at 1.75 percent and APY on the one-year CD also at 1.75 percent. Online, those rates jump to 3.51 percent for the six-month CD and 3.25 percent for the one-year CD.

A spokeswoman at Washington Mutual says that overall, the bank's strategy for product offerings and pricing is based on a variety of factors, including the type of channel (store, phone or online), market competition, product feature or enhancements, customer research, and price.

"Our online channel provides us with an inexpensive way to acquire deposits, and we pass along some of those savings to our customers who like the convenience of opening CDs through," she says.

AmTrust Bank created AmTrust Direct to offer online products. The savings account online offers an annual percentage yield of 4.6 percent, with $1 required deposit to open it, while the in-branch offering, which requires $100 to open, offers 0.5 percent. The six-month CDs pay an APY of 4 percent in-branch and online, while the one-year CD pays 3 percent in-branch, versus 3.5 percent online.

According to Julie Clemo Tutkovics, AmTrust's director of retail and business product management, the decision to create AmTrust Direct was made in order to reach customers nationally.

"Clearly, with a branch footprint in Ohio, Florida and Arizona, our recent retail strategies have included focusing on high-growth areas," she says. "AmTrust Direct seemed like a natural extension to provide great products and services to customers and prospects both around our branches but, just as importantly, to those where we do not have a physical presence."

Tutkovics says that "the pricing strategy certainly takes the national landscape into consideration, but we price our products based on what customer segment needs are, and typically online products tend to be a bit higher. We have seen a dramatic increase in our reach and now have customers across the country. That would not have been possible, in the short term, without a Web presence."

Not all banks offer different yields online

Not every bank has to compete on number of deposits, or rate, according to McBride. "The higher online yields reflect the institution's desire to attract deposits. Some banks are swimming in deposits because they have a branch on every corner."

For example, Bank of America offers the same APY and minimum amount to open for online and in-branch on their savings (0.20 percent) and money market accounts (0.25 percent), as well as the six-month and one-year CDs (2 percent).

Bert Ely, of Ely & Co., an independent bank consultant, says that banks that offer in-branch and online banking have to be careful not to cannibalize their in-branch business. The online offerings bring in more customers that might not otherwise bank with them, but they are paying a higher yield for that money. So if the branch customers flock to the online products, the banks end up paying a high yield, plus a high cost to attract them through the branch business.

"It's a dilemma for banks," Ely says. "They don't want to compete against themselves."

The case for branches

There are still reasons customers prefer bricks-and-mortar to online banks.

"Customers are often more trusting when they can see branches," says Ely. "A lot depends on their situation. If they want to tap into their cash, it's important to have some sort of relationship locally. One of the reasons is that there will be no ATM charges, or there are times when you need to be in a branch. Deposits in particular are slower if you have only an online relationship. Now there is still some float delay or wire charges."

At Washington Mutual, a spokeswoman says the bank's in-branch offerings are priced competitively and offer benefits only available to branch customers. As an example, she cites the Bump Rate feature that allows customers to "bump" their CD rate under certain circumstances if standard interest rates go up for CDs of the same type and term.

"While we may not have the same offer in the store, we sometimes have a similar offer in other products or CD terms," she says. "For example, we may offer an attractive rate online for a six-month CD, while in the stores a similar short-term offer may be with a seven-, eight- or nine-month CD."

At AmTrust, Tutkovics says that before the bank introduced its online operation, customers used multiple channels, including phone, Web and the branch network, to do their banking. "When we designed the products for AmTrust Direct, we kept in mind the online preferences, so the features and functionality meet the needs of a typical online customer."

She expects customers will continue to use multiple channels.

"The customer drives their own channel preference," she says.

What does this mean for consumers?

With so many options available, should consumers look online or at their local bank branch?

"A lot boils down to personal preference," says McBride. "Do you want the convenience of having all your accounts in one place or being able to walk into a branch, or do you want the best return on your money? If you want the best return on your money, then it pays to be a free agent. You may have your checking account at a local bank with access to branches, but for investments such as CDs, you may want to put your money to work someplace else where you can get a better return."

McBride's advice to those shopping strictly for rate: "Cast a wide net. Use Bankrate's search engine to find the best rates online and in your local area. In addition, check the local newspaper tables and local credit unions."
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