ING Direct's New Electric Orange Checking Account

Lately my online bank, ING Direct, has been dangling its new "Electric Orange" checking account in front of my face. Apparently I am one of a select group of 400,000 of ING Direct's most active customers that make frequent deposits and withdrawals, and they're giving me the opportunity to sign up for the account in January, a month ahead of the national rollout scheduled for February. I have been using the company's Orange savings accounts, its CDs, and even its investment accounts to a limited extent. This new offering is a paperless checking account that pays interest on the your balance according to the following schedule (effective 11/29):

Balance::::::::::::::::::: Interest Rate::::::::::::::::: APY

$0-$49,999.99::::::::::::::::::::::: 2.96%::::::::::::::::::::::::: 3.00%

$50,000-$99,999.99::::::::::::::: 4.94%:::::::::::::::::::::::: 5.05%

$100,000 or more :::::::::::::::::::5.18%:::::::::::::::::::::::: 5.30%

On the surface, this looks very promising, especially if you have a balance over $100,000. Most checking accounts do not pay interest, and to get a 5.30% APY on a checking account is unheard of, especially given the paltry 4.5% APY on ING's own savings account.

When I first saw this account, I immediately thought these were short-term "teaser" rates designed to get people to sign up, only to be ratcheted down a year from now.

Banks are really fighting to retain customers these days, and getting someone to set up a checking account at your bank, automating all of their bill payments through your bank, and basically getting them comfortable with you makes it much more likely that they won't switch. So I figured ING was throwing a teaser out so you would go through the trouble of signing up for another account.

Then I thought about some of the costs (to your bank) of having paper checks. These involve check processing, check imaging, possibly printing copies of your checks in your monthly statements etc... By giving you a paperless checking account, ING saves these costs and can partly pass this savings along to the consumer in the form of interest paid on the account.

Another thing that ING will potentially get from these checking accounts are fees for overdrafts, etc... that it can't hope to earn on a savings account. In addition, the account offers a bank card, and ING can collect some fees from these if you use an ATM that's not in the network.

Combined with the fact that ING doesn't have the overhead the brick and mortar banks have, all of these features allow ING to potentially make money from a checking account that offers such a high rate of interest.

So am I going to sign up for the account?

No.

Why?

Number one, I still harbor suspicions that these rates are a little "too good to be true" and that they will come down to more normal levels after the introductory period is over.

Number two, Chase has already retained me pretty well! I have all of my bill payments set up through that bank's checking account, and I don't relish the idea of redoing all of my payees.

Number three, one of my 2007 goals is to simplify my finances, and I don't think adding another account is a good way to do that.

And finally, even though I don't use them very often, I still use paper checks at least once a month to pay my rent. I like the flexibility of being able to put one into a birthday card or send money through the mail with a paper check. In ING's defense, the checking account does offer an option where you can enter in some information online, and it will generate and mail a check to your recipient, but I'm not entirely comfortable with that process. Chase does something similar but I had them send a check to my brother one time and it took forever. Plus, you can't easily stuff one of those into a birthday card.

The rates are attractive right now, but in this case the negatives outweigh the positives for me. The last thing I need is another account, another piece of plastic with my account numbers on it, and more statements coming to my house.

You can read more about Electric Orange on ING Direct's Website.

POSTSCRIPT: I reevaluated the ING Direct Electric Orange account in May of 2007 and I opened one. See this post for my rationale (its about half way through the post). To make a long story short, it yields the same amount as a 1 year CD, and I had enough cash savings to get the highest offered rate, which is 5.25% APY as of June 2007.