Some of the Lesser Known Online Banks Have Been too Quick to Slash Rates, Burning Customers

The Federal Reserve made emergency cuts to the Fed Funds rate, taking the benchmark rate to a range of zero to 25 basis points as the COVID-19 crisis hit our shores last month.

While the Fed move will cause savings rates to fall over time, savings rates at many of the leading and most recognized online banks have remained somewhat competitive as these banks have shown some deference to their customers. (They have also in most cases, maintained competitiveness in their CD offerings too).

But, some other banks really took the knife to things. Emigrant Bank, for example, quickly and quietly moved their My Savings Direct account rate to 1%. The Emigrant move was particularly appalling as Emigrant had offered a market leading 2.40% in the Fall in an effort to attract new clients and as Emigrant Bank also raised its Dollar Savings Direct affiliate to 1.50% at the same time as it cut My Savings Direct to 1%. Unfortunately, Emigrant’s games were not surprising to those who are familiar with the bank’s rate practices over the last decade.

Other banks did similar things, and just as quietly, but nothing was quiet as egregious as Emigrant.

Now, banks have the right to set their own rates, and to decide whether they want to be competitive or not at a given point. But, the major online banks – CIT, Synchrony, Marcus, Amex, Ally, Barclays, Citizens Access, Capital One and Discover – have made multiyear commitments to the online banking space in the US, and are extremely unlikely to undermine their competitiveness and their relationship with their customers with quick and powerful rate moves down.

If anything, this period reminds us that sticking with a large recognized name brand is a tried and true strategy in the online banking space.