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 historied 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.

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.

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Capital One’s decision to acquire ING Direct was a great strategic move, but the deal had a few problems. Because ING Direct’s parent company, as part of a European bail-out agreement, was required to sell ING Direct in the United States and in other global locations, and to cease using the ING Direct name, Capital One was forced to change its branding and marketing.

What was once ING Direct, by far a favorite online savings bank among more internet-savvy and financially aware customers for many years, is now known as Capital One 360.

As I’ve discovered from many conversations, online and offline, Capital One is still struggling to rid itself of its reputation for catering to customers with poor credit — and not catering to them well. Although Capital One’s products have matured, and some of the company’s credit cards are matched well against today’s best credit cards, the impression of a company that deals with sub-prime customers lingers.

Today, Capital One is more than just a credit card issuer. The company began acquiring retail banks, redirecting itself towards depository institutions, following a trend through the recession where depository institutions had some regulatory advantages. For example, American Express, a company focused on its own credit cards as well as its travel business, branched into retail banking around the same time.

The question remains as to whether it’s fair to apply the lingering reputation of Capital One to its bank branches, online and offline, which offering savings and checking accounts to retail customers. Should former ING Direct customers expect the types of problems that Capital One’s credit card customers have experienced in the past?

Website improvements

With the rebranding required to occur by February, Capital One 360 took the opportunity to make some changes to the website, arguably the most important aspect for customers interacting with their financial institution when there are no branches.

Most of the changes to the website are purely cosmetic, but a new account overview page provides a simple way to see how much interest you’ve earned and to change basic information, like registering the account in the name of a Revocable Living Trust and applying for an increase in the overdraft line of credit for the checking account.

Money access improvements

If you had an ING Direct “Electric Orange” checking account or you decide to open a Capital One 360 Checking account, you now have additional ATMs available free of charge. ING Direct partnered with the AllPoint network to offer free ATM access at 38,000 locations, and with Capital One’s acquisition, this availability will continue. It is supplemented by free access at all Capital One ATMs, for a new total of 40,000 fee-free locations.

After Capital One announced the acquisition of ING Direct but before the rebranding, Capital One introduced a mobile application allowing easier check deposits. This has become an essential feature for any online banking experience; if your bank does not offer mobile remote check deposits, find a bank that does. Here’s a review of the “CheckMate” check deposit service, which hasn’t changed since the review other than in name from ING Direct to Capital One 360.

Capital One does not charge a foreign transaction fee when customers use a debit card overseas. The lack of foreign transaction fees is a hallmark of some of Capital One’s credit cards.

Interest rates

A primary concern for the savviest savers is the interest rates. A number of banks, traditional and new, are following the early online pioneers like ING Direct, VirtualBank, and NetBank, none of which continue to exist in their pioneering form. These banks without brick-and-mortar locations were able to curtail expenses related to the operation of storefronts. Just like in Being John Malkovich, “Low overhead, my boy; we pass the savings on to you!” High-yield, internet-based, savings accounts can offer interest rates more competitively, putting the typical 0.25% APY or less you might receive with your big national bank to shame, but those big banks are now competing with their own online-only or online-focused divisions.

When a bank that has consistently offered one of the highest — but usually not the highest — interest rates available in the country is acquired by a larger corporation, one of the first thoughts among customers is that the best benefits are likely to change.

The Capital One 360 acquisition came at a time when banks were already lowing their interest rates. With the Federal Reserve Bank offering depository institutions money almost for free, banks have no incentive to attract depositors other than to meet capital requirements. Why would a business pay depositors 1% APY or more when it can raise the same funds at 0.25% or less from the Federal Reserve?

The acquisition does not seem to have hastened the bank’s drive to decrease customers’ interest rates — at least, not yet. Over the past year, ING Direct has decreased its savings account interest rate only once, from 0.8% APY to 0.75% APY. It’s not the highest available among the best savings accounts, but a good customer experience can occasionally make up for a less-than-stellar interest rate deal.

Customer service

For better or worse, there haven’t been any changes to customer service availability. Capital One retained ING Direct employees in their customer service centers and haven’t scaled back hours of operation. I have not had any problems in dealing with customer service since the acquisition. My one call to customer service was to close my business savings accounts — a decision I made because the business was closing, not because of the change in ownership.

The call was easy, and I was connected with the customer service representative right away without being required to navigate a maze in an automated response system. The customer service agent was friendly, respectful, and knowledgeable, and he completed my request immediately.

For years, Consumerism Commentary readers have shared customer service stories with other readers, so if you have any experiences to share with the new Capital One 360, please be sure to offer your impressions for the benefit of other visitors to this website by leaving your comments below.

Referral program

ING Direct was popular not only for its higher interest rates but for its referral program. This program has continued and expanded under Capital One. Customers can earn up to $500 using the “Refer a Friend” program. I used 25 of my 25 referrals back in 2008, but I was interested to see that I now have 25 more referrals available, for a total of 50. For each new customer you refer who opens an account with a deposit of at least $250, you receive a $10 bounty. The new customer receives a bonus as well: $50 for opening a checking account or $25 for opening a savings account.

Improvements to the Refer a Friend program make it easier for customers to share their referral link using social sites like Facebook and Twitter.

The bounty you receive as an existing customer and the bonus you receive as a new customer are considered interest income. If you open a new checking account using a referral link with a $250 deposit and leave it for a year and earn a $50 bonus above your normal interest, you’ve effectively raised your interest rate beyond 20% APY. Refer your friends and you could, in theory with a $250 deposit, earn $550 plus your regular interest, for an incredible APY of 220%. That’s just playing with the numbers, though, because these are one-time bonuses that cannot be repeated over the long-term.

What do you think

Open your own account today and see for yourself.

Thus far, Consumerism Commentary readers are split. Some indicated they intended to close their ING Direct accounts because they weren’t interested in an account owned by Capital One, while others were planning to “wait and see” if Capital One would make any detrimental changes to the banking operations for former ING Direct customers. Normally, I’ve been able to talk with ING Direct executives candidly about their bank’s services and policies — and I’ve never had any problems getting in touch with the right people at other banks — but after the acquisition was announced, Capital One executives refused to talk to me about their plans for ING Direct customers.

A lack of candid communication certainly worried me, but I kept my funds in the Capital One 360 account, and I don’t feel like I’ve suffered for it — so far.

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