Charles Schwab Corp. plans to unveil a checking account today that pays a 4.25% annual percentage rate and requires no minimum balance.
Promoting a high-interest checking account is hardly revolutionary, but it does mark a significant shift for Schwab's bank, which has focused mainly on mortgage-related lending since being chartered four years ago.
The account has no balance minimum and is automatically linked to a brokerage account, which also has no balance minimum. The checking account will replace Schwab's current investor checking account, which offers a tiered rate ranging from 0.96% to 3%. Holders of that account will get the new rate automatically.
"The product is designed to truly be no catches," Walter W. Bettinger 2nd, Schwab's president and chief operating officer, said in an interview Wednesday.
Schwab estimates there are 100 million people with $650 billion deposited in checking accounts. "That's an enormous consumer opportunity being lost," he said.
The company expects the new product to accelerate overall bank account growth, Mr. Bettinger said. However, "we're not going to make public statements about the extent we expect this will grow new accounts at the bank."
The new account is not expected to affect Schwab's financial performance, he said. Analysts expect the company's full-year earnings per share to rise 13 cents from last year, to 93 cents.
Though Schwab Bank grew slowly its first few years, its deposits soared 70% last year, to $9.7 billion, while total accounts grew 9%, to 151,000. It now has $11.5 billion of assets.
A spokesman for Schwab said "a significant portion" of that growth came from brokerage account balances that were being swept into bank accounts.
Until now Schwab has not used its bank to generate deposits. It has offered certificates of deposit, money market accounts, and a regular savings account that pays an APR of 1.04%.
"They really don't aggressively promote a product to attract a lot of client assets into their bank," Patrick O'Shaughnessy, an analyst at Morningstar Inc., said in an interview Wednesday.
E-Trade Financial Corp., a Schwab competitor, promotes a savings account with an APR of 5.05% on its Web site, but "you go to Schwab's home page and they are promoting their rates on home equity loans and mortgages," Mr. O'Shaughnessy said.
However, in November Schwab began a strategic review of its banking operations, seeking ways to integrate the bank more closely with the brokerage business.
Noor Menai, the bank's president and chief executive officer, is conducting the review with Mr. Bettinger, who was named the president and chief operating officer in February and is considered likely to succeed Charles Schwab, the firm's founder, as its CEO.
Last year Schwab's brokerage business emerged from an 18-month turnaround aimed at helping it reconnect with mainstream investors by reducing fees and improving service. During that turnaround, the bank focused primarily on mortgages and home equity lending.
Brokerages that integrate various financial capabilities, including banking, will be "the winners in this business." Mr. Schwab said at an investor day in May.
"We're going to be the best integrators," he said.
