ING DIRECT: Will it be a 360-Degree Change?

The ease of setting up an account, its web interface and bill paying features, the absence of fees and minimum balance requirements, and decent interest rates compared to its competitors have provided more than enough reasons for ING Direct customers to use the online bank. And while ING Direct’s interest rates have fallen considerably since the Great Recession, the current rates offered by the bank have remained competitive and therefore attractive for customers.

Capital One Bank has traditionally rather competitive money market and savings account rates without monthly service fees. However, by contrast to ING Direct, it has never been a bank known for providing excellent rates and outstanding service. Nevertheless, in acquiring ING Direct and converting its name to Capital One 360, the bank has made the following pledge on the ING Direct website. "We’ll deliver real value. We’ll continue to be home to no-fee, no-minimum checking and savings accounts—with the great rates that we know are important to you."

But the question remains if the bank will be able to keep this pledge, especially if rate cuts similar to the ones in October 2012 continue. At that time, the bank’s Orange Savings account rate fell 5 basis points to 0.75%, and its Electric Orange checking account also fell by 5 basis points across all deposit amounts (The rate for balances of $100K or higher, and the rate for balances between $50K and $100K are now at 0.85% and 0.80%, respectively). Additionally, all CD rates fell 10 basis points, with the 5 year CD being at only a mere uncompetitive 0.90% now.

In addition to possible changes in interest rates, what other changes should existing customers expect to see? First, there’s good news for the frequent traveler. The bank has waived foreign exchange fees on debit card purchases outside the U.S, consistent with Capital One’s policy. Second, with “On Us” checks, money will be made available sooner to customers. Checks (“On Us” checks) written from one ING Direct or Capital One 360 account and deposited into another will have next business day availability. Third, all accounts will be covered by Capital One’s tighter privacy policy.

One significant note of importance is that customers with large deposits at both ING DIRECT and Capital One may lose FDIC coverage in May 2013. Any customer whose balances across both accounts between the two banks will exceed FDIC coverage amounts on that date should reallocate their assets prior to May.

Now that the legal acquisition of ING Direct was completed on November 1, 2012, customers may see lower rates and a deterioration in service levels. Overall, customers have continued to be loyal to ING Direct because of its competitive rates. But with more rate cuts like those in October and any slippage in service, and customers may begin to leave quickly and en masse.