It has been over one year since Barclays started offering an online savings account and online CDs. During this time, its rates have remained very competitive. I thought this would be a good time to reach out to Barclays so we can learn more about the bank and what we may see in the future. On Friday I was given the opportunity to talk with Andrew Harris, Barclays U.S. Director of Deposit Products and Customer Experience.
The first thing I learned in our discussion was that Harris was surprised last year when I did my first Barclays blog post. Barclays first started offering its online savings account and CDs to the general public on March 22, 2012. This wasn’t an official launch (which was on May 7, 2012). The early launch was intended to be primarily for employees, their friends and their family to help Barclays fully test out the user interface. However, they decided to make it available to anyone who wanted to open an account. During this time, they avoided advertising the new internet bank. So that’s why they were surprised when they saw my Barclays review just one day after the accounts were made available. I’m always on the lookout for a good deal, and when I came across Barclays last year and confirmed that anyone could apply, I didn’t waste any time in posting my review.
So why did Barclays decide to launch an internet bank in the U.S.? In addition to broadening its reach in the U.S., Harris said they also saw retail deposits as a more reliable source of funding for its credit card operations. Its U.S. credit card operations began in 2004 with the acquisition of Juniper. Since that time the operation has grown considerably.
When the internet bank launched, Harris said that they did not only want to be competitive, but they also wanted to offer consistency and simplicity. We have seen all of these traits in the last year. The time when Barclays first launched it was facing competition from new internet banks like TIAA Direct and CIT Bank. From our discussion, it was apparent that they pay close attention to the competition. That was clearly a factor for them launching the bank with a competitive savings account yield of 1.00% and maintaining this rate over the last year. I asked how long this might continue. As you might expect, he can’t guarantee it will hold, but they do want to keep it as long as possible. Market factors will be an important consideration.
If you have opened a savings account or CD at Barclays, you have seen what is meant by simplicity. When I opened a Barclays CD, the application and funding process was simple and smooth. One of the nice features of the application is the ability to designate beneficiaries which will make an account a Payable on Death (POD) account. Harris mentioned that he has learned how important FDIC coverage is for customers. As a result, they have made it easy to open POD accounts to allow customers to maximize their FDIC coverage (see my post). For specific FDIC coverage questions, they will refer customers to the FDIC calculator. However, there have been cases when Barclays has warned customers who may have misunderstood the FDIC coverage rules. One example Harris mentioned was a customer who opened several individual accounts with $250K deposit in each. No beneficiaries were listed so only $250K was eligible for FDIC coverage. Barclays recognized that the customer may have misunderstood the FDIC rules and warned him. It turned out the customer had been misinformed by his financial advisor.
Not everything has been perfect at Barclays in the last year. One thing that concerned some EpBooks.us readers was the way Barclays increased the early withdrawal penalty (EWP) on new CDs. In addition to the concern of a larger EWP, there were concerns about the communication and the documentation discrepancies. First, I asked about the reason for the larger EWP. The EWP increased from 90 days of interest to 180 days of interest for CD terms over 2 years. According to Harris, they evaluated the change based on what their competitors have done. As we know, there’s a tradeoff between the rate and the EWP. A smaller EWP can force a bank to offer a lower rate. So these factors led to a larger EWP. However, they tried to minimize the increase to only long-term CDs with terms over 2 years. In addition, they kept the EWP simple. Some other banks have come up with complicated equations that try to compute an economic replacement value.
A very important thing to note of this early withdrawal penalty change is that it was NOT retroactive. Harris stressed the fact that existing CDs were not affected, and he also stressed that Barclays will not make such changes retroactive in the future (if changes are made in the future). That is the reason why this change wasn’t communicated to existing customers. Barclays felt it would create confusion for its customers since the change didn’t affect their existing CDs.
Regarding the discrepancy in the documentation, Harris said they have taken steps to ensure better execution in the future. The issue was that it took several days for the FAQ to be updated with the new EWP after the new EWP was shown in the terms and conditions document.
Last November Barclays announced in a press release that it had surpassed $1 billion in deposits for its online savings accounts and CDs. Harris did not provide new details on their deposit growth, but deposit growth continues to exceed expectations. Just like for any bank, deposit growth, the competition and the Fed policies will all be factors that will affect future rates. I can’t say if Barclays rates will hold up for its second anniversary, but I think it’s a good bet Barclays’ rates will remain very competitive.