Online banking customers searching for the highest savings rate their institution offers may need to open a new account to get it.
UFB Direct, a brand of Axos Bank, offers customers who sign up for its new elite savings account an APY of 3.01%. Customers with the bank's reward savings account, the account it advertised as high-yield before launching the elite account last month, received a 2.21% APY offer upon opening accounts in August.
Webster Bank's online division, known as BrioDirect, advertises a rate of 2.8% on the high-yield savings plus account it launched last month. Before launching that account, BrioDirect paid customers with its standard high-yield account an APY of 2.15% in July.
Requiring customers to open new accounts to cash in on the highest available rates could suppress deposit costs at a time when the Federal Reserve's large and frequent rate increases have pushed banks to raise rates more quickly than many had expected.
"Banks get to bring in new deposits, new customers, while lowering their overall deposit costs by paying a lot of the existing customers the old rates," said Ken Tumin, the founder of DepositsAccounts.com, which tracks rates offered at a wide range of banks.
The strategy has been employed by online banks, which didn't see the same surge in deposits as brick-and-mortar banks during the pandemic and typically pay depositors higher rates.
Creating higher-yielding savings accounts for new customers isn't a novel strategy, Tumin said. Some lenders employed it in the years before the financial crisis, another period of rapid rate increases by the Federal Reserve.
"Unless the customer pays attention, he or she might never notice it," Tumin said.
It is unclear whether Axos Bank and Webster Bank have notified existing customers that they could enjoy higher rates by opening new savings accounts.
Axos Bank, a San Diego-based unit of Axos Financial, declined to comment on the yield differences between its savings accounts. Webster Bank, a unit of Webster Financial in Stamford, Connecticut, did not immediately respond to requests for comment.
Banks were flooded with deposits shortly after the coronavirus hit, adding more than $3 trillion between April 2020 and April 2021. The large majority of those flows went to large, well-known banks including JPMorgan Chase, Bank of America, Wells Fargo and Citigroup. Online banks received less of the influx.
Deposits at commercial banks have leveled off in recent months as American consumers have responded to near-record inflation by increasing their spending. U.S. commercial banks held about $17.9 trillion in deposits at the end of September, down from $18.13 earlier this year, according to the Federal Reserve.
Banks were slow to raise interest rates when the Fed first hiked rates this year. Even when the increases became more frequent, many consumers stayed put, unaware of high potential returns available elsewhere or unmoved by the offerings. That began to change in July, when the rate of customer-switching increased, said Adam Stockton, director of retail deposits at Curinos, a financial services consulting firm.
"A lot of banks are saying, 'We don't need to be really aggressive to grow today, but we really do need to be super thoughtful about trying to retain all the deposits we have,' " Stockton said.
Deposit costs are expected to rise when
