Business Columns & Blogs

Banks are heavy on hype, light on returns

A local bank recently issued a news release in which it jauntily announced a new promotion to reward depositors: Instead of a boring giveaway like toasters, how about iTunes downloads?

“Finally, a cool reward that customers actually care about!” said the accompanying note from the bank’s public relations firm.

The announcement prompts a couple of thoughts, starting with this: As much of a banking industry cliche as it’s become, when was the last time a bank actually gave away a toaster as an enticement to its customers? Are there many remaining in the universe of banking consumers who remember when that was done?

Then there’s this: Is the toaster really such a denigrated and undesirable household appliance that it’s seen as a competitive advantage to offer something as ephemeral as iTunes downloads in place of the toasters that no one’s giving away anyway? Maybe someone would rather have the toaster.

But most striking is the thought that in fact there is a cool reward that customers care about, far more than toasters or iTunes downloads or toasters that will play iTunes downloads.

That would be money.

Money, as in interest paid on deposits. The other stuff is nice, but all the same the customers would rather have the money.

But they can’t have the money because no one’s paying it, not enough to notice anyway. In the weekly money rates table, published every Sunday in the business section of your News Tribune, the Washington average for annual interest on money-market accounts with a minimum of $2,500 was, as of a week ago, 0.14 percent. For certificates of deposit with a minimum of $5,000, the state average was a whopping 0.34; on an Individual Retirement Account, the payout was 0.42 percent.

Just makes you want to stuff as much money as you can in a savings account, doesn’t it?

At least the PR letter had the honesty to note that the iTune downloads were being offered instead of “a measly interest rate.”

Measly is an understatement, and the problem is that it’s not likely to get much more attractive any time soon.

The Federal Reserve has signaled that it intends to keep interest rates as low as possible in a continuing (some might say desperate) effort to get people and businesses to borrow. Never mind that a little too much encouragement to borrow got us in this mess in the first place, or that people don’t have the confidence about future business and economic conditions to borrow. As movie producer Samuel Goldwyn (one of columnists’ favorite go-to guys for useful quotes) once said, “If people don’t want to go to the picture, nobody can stop them.” And as long as banks aren’t earning anything on loans they’re not making, they’re not going to be paying out anything in interest.

Just about everyone has had a rough go of it in the recession, and among the hard hit have been those, predominately seniors and retirees, depending on interest income and stock dividends. The latter have been in many cases cut or eliminated (at one time Washington Mutual paid a 53-cent-per-share dividend).

As for the former, a forgotten point about the banks-giving-away-toasters meme is that such promotions were the product of an era in which banks were limited in what they could pay on deposit accounts. Giveaways were a point of differentiation to bring in customers.

Indeed, it’s a bit of a surprise that banks are offering giveaways at all to attract deposits they don’t need. Consumers may figure that security and convenience, along with the occasional trinket, make having a bank account worthwhile. If they’re hoping for something more remunerative, however, they may be disappointed when they attempt to pay their utility bills with credits for iTunes downloads.