A number of E*TRADE Bank customers have written to Consumerism Commentary to inform me of this recent news. E*TRADE is planning to move its banking customers to Discover Bank. I have a savings account at E*TRADE but I have not yet received any communication from the bank.
Thanks to E*TRADE’s fast external ACH transfers, the bank has earned a spot on my list of the best online savings accounts. Nevertheless, this move might be good news for savers. E*TRADE is currently offering an interest rate of only 0.50% APY while Discover Bank is offering 1.35% APY. This increase in interest rate would easily cover one day’s lost interest income due to funds in transit from one bank to another.
I’m not surprised E*TRADE is exiting the banking scene. E*TRADE is primarily a brokerage. For some brokerages, banking may no longer seem like a worthwhile endeavor. The government is considering the separation of some banking functions with some investment functions, with discussions surrounding the Volcker Rule which would prevent the funds banks receive through deposits (savings accounts) from being used to be invested for the company’s behalf.
Also, investment banks rushed to be reclassified as bank holding companies in order to qualify for a part of the federal stimulus package. The era of bank bailouts is over, so this and the threat of more regulation will reverse this trend.
Although many customers have reported received similar emails warning of the impending transfer to Discover Bank, E*TRADE is still accepting applications from new savings account customers. Have you received this communication from E*TRADE Bank? I’m interested in giving Discover Bank’s online savings account a test drive, but I have not received information about the impending transition.
Updated March 22, 2011 and originally published February 19, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.