Low interest rates and attractive equity markets have forced banks to find different ways to attract deposits.
Some are offering outrageously high promotional interest rates, while others say they refuse to succumb to price pressure and will instead emphasize service.
In the past few months the Midwest and parts of the Northeast and South - areas that perhaps not coincidentally have seen big merger deals - have emerged as battlegrounds in the price war.
The battle to attract and retain deposits has analysts and bankers questioning whether the pricing strategies have reached irrational levels.
"It has become more difficult than last year to attract deposits," said Peter Raskind, executive vice president of consumer and small-business services at National City Corp. in Cleveland.
The Energized Checking ac-count from Charter One Financial Inc., one of the deposit price leaders in Ohio, offers new customers a 2.96% rate for the first three months. (The promotion, which requires direct deposit, runs through July). The Cleveland company's money market promotional rates are 2.10% for balances over $25,000.
Charter One's nonpromotional checking rate is 0.65%. The national average rate for interest-bearing checking accounts is 0.25%, according to Bankrate.com; the average in Cleveland is 0.54% - down from 0.65% in late January.
A spokeswoman for Charter One would not comment on its deposit pricing strategy.
KeyCorp, also in Cleveland, increased its rate on interest checking to 1.11% at the end of February from 0.95% in January, and its money market rates to 0.43% from 0.05%, according to Bankrate.com.
Rather than promotional, Key's rate is ongoing, and analysts say regular checking at 1.11% is unsustainable in a low-rate environment.
According to Key's first-quarter report, total domestic deposits fell by 0.85% from yearend. Company officials were not available for comment.
Mr. Raskind confirmed in an interview last week that competition has intensified on deposit and loan pricing since the beginning of the year.
National City, which has invested millions of dollars in its retail business, reported a 1.9% rise in its domestic deposits for the first quarter.
Jeff Davis, an analyst with First Horizon National Corp.'s FTN Midwest Research Securities in Nashville, said Ohio, Florida, and western Pennsylvania are among the regions where prices have risen recently.
Anticipating an increase by the Federal Reserve, banks are acting to lock in CDs at lower rates for a bit longer, Mr. Davis said. They are also trying to prevent deposits from moving back into equities.
The race spills over to other categories, including checking, money market, and time deposits.
Mr. Raskind pointed out that not only are introductory rates more competitive - particularly for money market accounts - but that promotions are lasting as long as six months.
In contrast to competitor Key's high rates on interest checking, National City pays 0.45%.
National City will compete on rates only as long as accounts are profitable, Mr. Raskind said. If it becomes obvious that a customer is a rate shopper, "we will probably let the deposit go to another bank."
Wachovia Corp. of Charlotte and Sovereign Bancorp of Wyomissing, Pa., also claim to be steering clear of the price war.
Ben Jenkins, senior executive vice president and the president of Wachovia's general bank, said higher deposit sales and better service quality were responsible for first-quarter growth of 19% in noninterest checking and of 22% in interest checking. Wachovia did not offer promotional rates for new accounts, he said.
"We want to be price competitive" but not price leaders, Mr. Jenkins said. "We don't use across-the-board aggressive pricing to get new customers."
According to data from Bankrate.com, Wachovia's rates on checking and money market accounts in the Philadelphia market, for example, are slightly lower than average, but its 5-year CD rates are higher.
Similarly, Sovereign's Keh Kwek, the senior vice president of the retail strategic marketing group, said: "Our intention is not to increase core deposits by pricing up."
Sovereign's interest checking and money market accounts carry lower-than-average rates. Its interest checking, at 0.05%, is below the average in Philadelphia of 0.17% and the average in Boston of 0.12%, according to Bankrate.com.
