A little less than eighteen months ago, I mentioned that ING Direct was scheduled to be sold off. The online bank’s parent company, ING Group, received taxpayer assistance. The plan is for ING Group to sell ING Direct USA to pay back the European Commission.
The New York Post reported today that Ally Bank is in talks to buy ING Direct USA, its major online savings account competitor, to expand its portfolio of deposits and offset Ally Financial’s portfolio of troubled assets. I’m a customer of both banks. Both are strong marketers; customers in the United States are familiar with ING’s orange ball and Ally’s amusing commercials.
What this sale might mean for customers
I’ve dealt with customer service with both banks and I have never felt frustrated or confused. I have never had a problem with my accounts at either bank, but I have used my accounts at ING Direct much more extensively than my accounts at Ally Bank. Both banks continue to offer very good interest rates for savings, though ING Direct is no longer at the top of this list. The loss of a major competitor means that we could see increased costs of doing business — possibly new fees — and less favorable interest rates for customers. I’d like to think that there is enough competition among high-yield savings accounts to keep these changes to a minimum, but whenever the market combines the top two competitors in an industry, customers need to consider their options.
Ally has worked hard with branding and marketing to disassociate itself with its troubled past parents, GMAC and General Motors. Ally Bank has, in the past, angered the American Banking Association by offering savings interest rates that were too high. The ABA sent a letter to Ally requesting the bank to lower rates so other banks could compete. Brick and mortar banks had to stop posting their interest rates online because their rates could not match what was being offered by low-overhead, online-only banks.
ING Direct has spent many years turning its customers into loyal fans. From the consumer’s perspective, being a fan of a company is dangerous because it can lead to ignoring flaws. Many customers who joined ING Direct years ago due to the bank’s high interest rates have stuck with the bank because they like the service and it would be inconvenient to switch. These are legitimate reasons to stay with a bank, but when it comes to financial decisions, customers can’t ignore the effect it has on a wallet. For someone who has enough money in the bank to earn $50 in interest a year, it might not make sense to switch to a new bank to earn $10 more dollars that year, but interest compounds over time, and the effect a higher interest rate has on a lifetime of savings can be substantial.
Rates are, of course, only one factor in choosing a savings account. Both Ally Bank and ING Direct have offered good to excellent interest rates and great customer service so far. At this point, with Ally Bank’s troubled heritage in the past, it’s safe to say that there is a possibility for good synergy as a result of this sale. But even the simplest acquisitions could end up hurting the consumer.
As of today, there is no definite declaration that Ally Bank will purchase ING Direct. The announcement is only that the two banks are in talks, and these types of announcements often exist only to gauge public (and particularly investor) reaction and sentiment. I think the new online bank formed with the deposits from Ally Bank and ING Direct would not qualify for “too big to fail” status, but the combined bank would be the leading online savings account in terms of volume of deposit accounts.
What do you think of this hypothetical merger? If you’re an ING Direct customer, would you change banks based on the purchase alone? Do you think Ally Bank will be able to handle the merger of the deposits? Do you think it’s weird that ING Direct, a bank with Dutch heritage, would be partly owned by General Motors, a domestic car manufacturer?
Updated October 19, 2011 and originally published May 10, 2011.