Tuesday, December 4, 2007

Online Banks: Stop With The Ridiculous Savings Account Rate Comparisons

I got a flyer in the mail from eTrade financial today, advertising the "complete savings account". It showed a chart that has become all too familiar to me as I've been shopping around for another online bank recently.

On the left was a big bar the size of the empire state building, it had 4.70% in HUGE PRINT at the top of the bar. This is the rate on E*Trade's Complete Savings account. Next to it was this tiny little bar that said 0.50% at the bottom, in tiny print. This was labeled "National Average."

For years, online savings and moneymarket accounts have been making this ridiculous comparison. They compare the rates on their high-yield accounts to this puny "National Average," which the E*Trade footnote says comes from Informa Research Services, Inc.

To put it simply, this is a ridiculous apples-to-oranges comparison, but it seems like every single online bank does it.

What if BMW started running commercials where it raced its newest model against a 1997 Buick Regal, then proclaimed victory when it won the race? We would all laugh at that, because it's a ridiculous comparison.

The "National Average" includes rates that almost nobody in their right mind should be accepting on savings deposits. It includes all of the brick and mortar accounts like my Chase savings account, which currently yields a paltry 0.7%. Do you want to know how much cash I keep in that account? Practically zero.

If you're promoting yourself as a high yield savings account, don't compare yourself to a different category (the broad universe of savings accounts). Compare yourself to your peers just like any consumer with half a brain will do. For example, JD at Get Rich Slowly has a great survey of 12 online high yield savings accounts with rates current as of December 3, 2007. Taking an average of these rates gets me 4.66%. Want to guess why E*Trade isn't using this average in its marketing materials? That's right. It's hard to make .04% look sexy when you put two columns next to eachother in a chart.

Sorry to go off on a rant, but online banking industry, it's time to stop this. I'm calling you out!

In fact, I propose (if it hasn't already been done) that bankrate.com or some other high-visibility banking organization come up with a more appropriate standard average against which online banks can compare their high-yield savings account yields against. I know the banks must be doing this internally already. I think it's time for it to catch on in the consumer world so crazy comparisons like the one I got in the mail today stop getting sent around.

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