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High-yield savings accounts raking in the customers

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Perhaps it stands to reason that as consumers become comfortable with online banking, more and more of them are discovering the convenience of paying bills online.

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For them, depositing a couple hundred dollars and paying three bills online per month probably isn't a high hurdle to opening a high-yield account.

"Retail banking is saturated with great players, and banks have to have superior service or great rates to get customers," says Karen Massey, senior consumer banking analyst at Financial Insights.

"The ones with superior service will retain the customer, but when it comes to attracting new customers, rates are very eye-catching."

No-frills online banks pay more
High-yield savings accounts have caught the eye of Jennifer Benedict, a student at Canisius College in Buffalo, N.Y., who writes a blog called Broke-Ass Student. Benedict tries to encourage 20-somethings to become more financially savvy and avoid the debt that traps so many kids as they're starting their adult life. She socks her savings away at iGObanking.com.

"They have a high rate, no strings, $1 to open an account, no minimums, no fees and a 5.35 percent yield. It's phenomenal. I get feedback from my readers and some of them say, 'Cool. I never realized these things are out there but I will definitely look into it.' It's a matter of getting the information out to younger people. My biggest thing with the education system in the U.S. is they don't teach enough about personal finance."

IGObanking.com is a division of New York's Flushing Savings Bank. Marketing director Bill Franz says the online bank opens the door to expanding their geographic boundaries.

"People are savvy to higher rates, and online banking makes it convenient to open an account and you have to be aware of that. We've launched savings accounts and CDs online and we're looking at what other online banks are doing in terms of launching checking accounts. It's a way to solidify relationships, and we've taken note of that."

Online, interest-paying checking accounts appear to be the next frontier in the battle to get and keep customers. EverBank has set the standard pretty high with its FreeNet 6.01 percent three-month introductory yield, which, at current rates, would drop to 3.25 percent for balances under $10,000 after the first three months. ING Direct, which has long required its savings account customers to link their account to a checking account at another bank for the purpose of transferring funds, now has an online paperless checking account called Electric Orange, which pays 3 percent on balances up to $50,000.

In fact, the slim product lines being offered by many online institutions could be beefed up considerably as banks try to keep customers from bolting to the next bank that's raising the bar on high-yield accounts.

 
 
Next: "A high yield is far more enticing than camping gear. ..."
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