Saturday, April 08, 2006

What ING Direct's Non-Competitive 4.0% APY Savings Account Rate Means to Me

First off, I’m an ING Direct user; however, I’d exclude them in CURRENT recommendations to others. Right now, I’d recommend Emigrant Direct, HSBC or GMAC Bank.

Some observations about ING Direct's 4.0% APY:

(1) There switch to a 4.0% APY tells me that they have grown their customer base to a sufficiently large level that earnings growth going forward will likely have a large organic component (from within existing customer base), as opposed to from new customer acquisitions.
(a) ING Direct will probably try (experiment) and keep their rates at this competitive but modest level so as to not lose significant existing customers and concurrently increase profit margins. They're counting on poorly informed customers (not knowing about Emigrant Direct, HSBC, GMAC Bank, etc.).
(b) Customers not lost, will likely be targeted for other products that are perhaps more profitable (more favorable to gross margins).
(c) ING Direct strategy probably includes expectations that customers disappointed in the 4.0% APY may be too lazy to switch to a different hi-yield account but will lock in their money into ING Direct CDs to compensate.
(d) ING Direct will probably continue to offer and possibly increase existing cash based referral incentives (to compensate for sub-par 4.0% APY).

(2) ING Direct's lack of rate competition appears to be an early indication that at least one internet bank is predicting an end to FED rate hikes.

Disclaimer: I've never worked in banking. These are my humble opinions on how ING Direct's 4.0% APY savings account may be part of their underlying strategy.

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