Sticking your money> in one bank doesn t always mean it will stay there.
Earlier this week, E*Trade Financial notified an undisclosed number of customers that their accounts would be transferred to Discover Financial Services. All E*Trade Complete Savings accounts that are not linked to active brokerage accounts with the firm will automatically become Discover Online Savings Accounts on or close to March 7. (An active brokerage account is defined as an account with $25 or more in assets, or one that has seen at least one trade executed in the last six months.)
If you weren t tuned into E*Trade s fourth-quarter earnings call in January, the announcement may have caught you by surprise,. In the Q&A section of the call, the company s Chairman and Interim CEO Bob Druskin confirmed the sale, adding that it is in keeping with strategy of reducing the bank s balance sheet, and therefore the capital required to support the bank. The firm is keeping accounts that are linked to active brokerage accounts in an attempt to retain its brokerage customers.
E*Trade spokeswoman Tina Martineau says that customers whose accounts are switched over are getting a higher yield with Discover. Discover s Online Savings Accounts currently pay out 1.35% APY, while E*Trade s Complete Savings Account pays only 0.50% APY.
But read through the fine print, and you may discover a few caveats. To start with, the banks fee structures are quite different. E*Trade charges $25 for outgoing international wires, for example, while Discover charges $40. However, Discover customers would save on stop payment, returned deposit and excessive withdrawal fees, each $15, compared with $25 at E*Trade.
The time you need for fund transfers from external accounts to be processed also varies. It takes two to three business days at E*Trade, while at Discover you may have to wait longer: between three and five business days, depending on the other financial institution.
And if your account balance is at least five digits long, beware. Unlike E*Trade, which does not limit the amount of money that could be wired or transferred to another account, Discover currently has a $25,000 monthly limit. (The limit will increase to $50,000 a month as of this weekend.) That could be an issue if you need the money for a large purchase, such as a down payment on a house. There are no limits on the amount that could be deposited. (With either bank, a $100,000-per-day limit applies to electronic fund transfers.)
Discover spokesman Jon Drummond says the $50,000 limit is established for security reasons and if customers want to go over that limit, they need to call customer service and the transaction will be handled over the phone.
Comparing account terms and fees is a good exercise, not only for E*Trade customers, but for anyone whose bank has recently been acquired by or merged with another institution. With 140 bank failures in 2009, according to the Federal Deposit Insurance Corporation, and 15 so far this year, the number of consumers affected by bank takeovers is substantial.
Historically, banks have tended to grow by acquisition, says Richard Barrington, a banking analyst at Money-Rates.com. There are so many examples of that, and not just in the recent economic environment. People should prepare for this kind of thing happening to them at some point.
What should you do if you find yourself in that situation? Don t trust that it s enough to simply monitor your bank statements and make sure all your money makes it from Bank A to Bank B safely. Be more vigilant by following the steps outlined below.
1. Know what you re getting into
You wouldn t choose a bank without researching its products and terms first why let yourself be thrown into a new bank without knowing what you re getting into? Don t limit your research to the bank s yields and fees, but look into details you don t normally find advertised on the bank s home page. How long does a fund transfer take? Are there limits on the amount of funds you can deposit or withdraw in any given day -- or month? You may have to call customer service to get that information. Are you satisfied with the call wait time and with the customer service rep s responses? If the answers don t satisfy you, it may be time to start looking for a new bank.
2. Shop around
Shopping for better bank terms whether it s a higher yield or lower fees is something few consumers do on a regular basis. In a way, [a merger or acquisition] is a good thing because it would behoove people to at least once a year look at their bank accounts and see if they could be getting better terms elsewhere, Barrington says. To compare banks current yields, use web sites like Bankrate.com and Money-rates.com, but don t forget to drill down further and look at things like minimum balance requirements and account fees.
3. Monitor for future changes
Even if your account terms don t change immediately after a takeover, chances are they will in the future. When banks merge, it s a lot like people getting married, says Greg McBride, a senior financial analyst at Bankrate.com. First they announce their engagement, after some time they walk down the aisle, and eventually the bride files the paperwork to have her name changed.
Eventually, your new bank will go over the features and pricing of the acquired accounts and look to streamline them into its existing offers. If you re going to see a change in terms to your account, it may not be a change that s in your favor, says McBride. In that case, it pays to shop around and find something better.
E*Trade Complete Savings Account
Discover Online Savings Account
|* The limit on the number of monthly withdrawals is dictated by Regulation D.|
** A $100,000 per-day withdrawal limit applies to all ACH transfers.
Sources: company web sites. Data as of Feb. 10, 2010.
|Minimum opening deposit||$1||$500, waived for E*Trade account takeovers|
|Withdrawal limits - number of withdrawals||Six per month*||Six per month*|
|Withdrawal limits - amount withdrawn**||None||$50,000 per month|
|Incoming wire fee||Free||Free|
|Domestic outgoing wire fee||$25 per wire||$20 per wire|
|International outgoing wire fee||$25 per wire||$40 per wire|
|Stop payment request||$25||$15|
|Copy of statement||$5||$5|
|Fund availability after transfer||Two to three business days||Three to five business days|