Barclays has enjoyed a long and storied history as a financial industry leader in the United Kingdom. While those of us in the United States often consider a financial company to be well established once it passes its centennial, Barclays was founded in 1690. As an organization, the bank is older than our country.
The brand made its entrance in the United States recently. During the collapse of the financial industry, Barclays acquired the remnants of the failed Lehman Brothers. The bank also primarily backed store-branded credit cards, like the Best Western Credit Card, until last year. The BarclayCard division of the company developed its own credit card products, such as the Barclaycard Ring MasterCard, which featured crowdsourced rewards. By using questionnaires and online voting, the cardholders can determine the card’s features.
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Barclays, like many financial services companies, has been under scrutiny. Last year, the company was fined $450 million for its involvement in the Libor scandal, allegedly manipulating how intrabank lending rates were determined, either to make a profit or to appear more financially secure than the company might have been.
Increasing its presence in the United States, Barclays is now focusing on its retail banking division, offering online savings and certificates of deposit. I opened a Barclays Online Savings account to see if the bank would be competitive with some of the best online savings accounts, like Capital One 360 (formerly ING Direct) and Ally Bank.
Applying for the account
The Barclays Online Savings account application requires the same type of information all banks in the United States require. The application conveniently asks up front whether you would like to create the account as a Payable on Death account, where you can designate a beneficiary. This will come in handy as it the option might be difficult to change later or you might forget.
The bank requires a Social Security Number and a street address in the United States. You will need to choose one security question from among three standard choices. If you ever need to call the bank for customer service, the representative will challenge you, asking you to answer your chosen security question with the answer you provide on the application.
As with all online banks, creating a new account requires an electronic link with an existing checking or savings account. Barclays ask for your external bank’s routing number and your account number. Within a few days, Barclays will initiate a test deposit. New customers must verify the amount of the test deposit in order to successfully use the external bank for depositing and withdrawing money to and from the Barclay’s account. The application notes that the bank will hold new customers’ initial deposits up to five business days.
The next step in the application is to agree to Barclay’s terms and conditions. The terms make it clear that for the first thirty days, Barclays will hold all deposits will be held for five business days before making the funds available for withdrawal. After that, ACH transfers will be available immediately (but keep in mind ACH transfers are usually processed overnight) while all other deposits are subject to a hold for five days.
In the terms, Barclays makes it clear that it is under no obligation to reduce fees for insufficient funds:
If we receive a withdrawal, transfer, electronic transaction, or other item drawn on your Account, and there are insufficient funds in your Account to pay the item, we will return the item unpaid and you may be charged an Non-Sufficient Funds (NSF) fee. We will process withdrawals, transfers or related requests received on the same day in the order we choose. You understand that we have no obligation to minimize the NSF fees charged as a result of having insufficient funds in the Account, and that the processing order we select may result in your incurring more fees than you would if we were to process the withdrawals, transfers or related requests in a different order.
This has been a significant problem with banks; Bank of America and several other banks recently settled a lawsuit that alleged they ordered withdrawals in such a way that the bank could maximize insufficient funds fees. The bank expects that including this clause in the terms would prevent customers from being able to successfully take action against the bank for the same shady practice. The good news is that the NSF fee is only $5 per item.
I discovered that actually taking the time to read the terms and conditions creates an online delay long enough for the application to time out, requiring the applicant to start from the beginning.
The final step is to verify your identity using questions taken from information on your credit report. This is a common method of identity verification used by the financial industry at large. If everything is as the bank expects, you’ll immediately be granted an account number and Barclays will begin processing your initial deposit from your funding bank.
Using the Barclays Online Savings account
Logging in to your account for the first time, the website will ask you to create a SafeKeys phrase. The bank will display this phrase and a selected image each time you access your account online. Also, you will need to provide answers to five security questions. These are different from the security question and answer created during the application process. Normally, you would need to answer one of these five questions every time you access your account online, but you can register your computer (or other device) to skip this part of the log-in process. That’s not recommended for security reasons.
The website interface won’t win any awards for innovation, but it gets the job done. All the necessary features are present. You can view a list of recent transactions in your account, transfer funds to and from your linked accounts, and sign up for remote deposit. You can read your statements online; Barclays does not send any statements via the mail.
Once my account is fully funded, I intend to test the speed of withdrawals. All other things being relatively equal, this is what I frequently see as the most annoying aspect of online bank accounts. For savings, you expect the money to be accessible when you need it; if it takes an unexpected long time for your linked bank to receive a withdrawal from the online bank, the funds held there are useless for small emergencies. (This is a good reason to consider a tiered emergency fund.
Interest rates and fees
Initially, Barclays is offering one of the top interest rates among online banks. This is a normal tactic for a bank that’s currently in a stage where it wants to generate deposits and new customers. Some banks offer competitive rates for a short time, enticing new customers, only to later lower the rates to be more like brick and mortar banks, while others hold onto their position among their competitors. Barclays is currently advertising that its rate are ten times the national average, and it will be interesting to see if that continues to be an enforced marketing message.
Online banks tend to be a commodity. Prospective customers generally shop on price, not on customer experience. Brick and mortar banks usually attract customers through customer service and location, but without a face, online banks are generally similar enough that customers may not always care about the identity of the company behind the account. Since price is an important factor, interest rates and fees tend to be important points for comparison.
I’ve already mentioned that the Barclays Online Savings account has a low insufficient funds fee of $5. There are no minimum balance requirements, and no monthly account fees just for the benefit of owning an account. You may be charged a small fee if you make over six withdrawals during a calendar month, but this comes from a government regulation for all savings accounts. There are no other fees with Barclays to speak of.
If you choose to open an account, or if you have had previous experiences with Barclays, please share your thoughts here. Continuing a conversation about the bank will help other readers decide whether the Barclays Online Savings account could be a great choice for a primary high-yield savings account.