An Entirely New Risk to Applying for Online Savings Accounts

BestCashCow.com has been monitoring the best savings rates nationwide for over 15 years, and for the first 14 plus, the situation for the consumer was very straightforward.

You’d check to see what the best savings rate on BestCashCow, click through to apply and, voila, you’d be making more interest on your cash than you could possibly be making anywhere else.

Recently, we’ve seen an influx of so-called “fintechs” in the financial space. Fintechs are designed to do nothing that a traditional bank cannot do. They basically lend and borrow money (without the consumer protection of the FDIC or NCUA), facilitate financial transactions, etc. From a consumer standpoint they offer ease of use (an IPhone application) and sometimes lower transaction costs. In return, the consumer is forgoing the regulatory protections and parting with their personal identifying information (address, social security number, drivers license) and willingly or unwillingly creating a trove of information that can be used to market to them.

And, in the post-Facebook world, this personally identifying information has real value. Anyone who questions whether real value can be made off of this information need only look at the types of travel rewards that major credit card companies offer just to get a credit card in your hands. (Compare all of the best credit card sign-up bonuses here).

Against this backdrop, smaller banks are struggling to compete. Yet, many of these banks do not need new deposits (or customers) as they are also flush with cash and the entire economy is awash in liquidity. Hence, we are now getting reports of smaller lesser-known online banks that are “offering” savings rates or CD rates that are well above those of their larger competitors, and are walking people through the online application process and summarily rejecting all applicants (or the vast majority of applicants), either through an outright rejection notice or through never responding (and denying any knowledge of the application). Unfortunately, this is an easy way for them to build their valuable databases with your personal information and that is worth more to them right now than having you as a customer.

It pains us to see this occurring with regulated banks and credit unions. And, it pains us to expose that this is happening. But, we have received so many reports from readers of this happening in 2021 and we’ve seen it from own experiences. So, yes, it is happening.

And, the question becomes what you can do as a customer to protect yourself and your personally-identifying information. We recommend the following steps.

1. Err towards the better-known, more established online banks. These banks are always competitive over the long-haul and they don’t refuse customer accounts. While you may make a few basis points less, these banks are not going to take your information and refuse you as a client. You’ll find at least thirteen of these to choose from: Marcus, Ally, Synchrony, CIT, CitizensAccess, American Express, Purepoint, CapitalOne, Barclays, CIBC, TIAA, Sallie Mae and Discover. On the credit union side, places like Navy Federal Credit Union, Pentagon or Alliant are not going to deny your application if you meet the Field of Membership Requirements.

2. Consider established banks with strong local or national reputations that are spending large amounts of money to establish national online brands. These banks are also unlikely to refuse you as a client. In our observation, there are currently at least eight of these that are currently among the most competitive savings and CD issuers nationally, include Comenity Direct (New York), Amboy Direct (New Jersey), Live Oak Bank (North Carolina), Salem Five (Massachusetts), CFG Bank (Maryland), First Foundation (California), Merrick (Utah), Zions (Utah), TAB Bank (Utah).

3. Read the reviews on banks and credit unions that you have not heard of. Except in egregious situations where we are inundated with customer complaints and the bank or credit union has refused to provide an explanation, BestCashCow is not going to remove savings and CD offerings from our site. But, unlike sites like Bankrate or Nerdwallet, we do offer verified customer reviews, linked from our table of the best online savings rates. You should read these. If people are reporting that they are unable to open accounts (either through the bank’s outright rejection or non-response), you should take these reports seriously.

It seems absurd to imagine that a bank would want just your personal information and not want your hard earned money, especially when you are essentially offering to lend it to them at below 1% or a fraction of the current inflation rate (thanks Federal Reserve!) But, yes, this is really happening.