Firing back at banking competitors that have attempted to poach customers with offers of free stock trades and other perks, Boston mutual fund giant Fidelity Investments and other investment houses are rolling out some of the nations most attractive checking accounts.
Fidelitys account, called mySmart Cash, pays customers an interest rate of 3.5 percent, well above what most local banks are offering. It also features no minimum balance requirement, no annual fees, no bounced check fees, free checks, and free online bill-paying services. Though Fidelity doesnt own any automated teller machines, the account offers refunds of nearly all fees a customer is charged at any of more than 1 million ATMs worldwide, including the networks of Bank of America Corp., Citizens Bank, and TD Banknorth.
Its all part of the push and pull within the finanx cial services industry as banks and brokerage houses try to top each others services in a bid to bring more of their client funds in-house.
Were seeing these accounts merging together, said Laura Bruce, senior reporter at Bankrate.com. For the consumer, its all about where youre going to get the best deal with the most convenience.
Bank of America escalated the competition last October, offering 30 free online equity trades a month to those who maintained a combined balance of $25,000 with the bank. The announcement caused the stocks of discount brokerages like ETrade Financial Corp. and TD Ameritrade to drop as much as 12 percent.
Charles Schwab Corp. countered by unveiling an investor checking account in April with a 4.25 percent interest rate, refunds of ATM fees, no minimum balance requirements, insurance on deposits up to $100,000, and free online bill paying. A company spokesman declined to say how many customers have signed up, but said demand has exceeded expectations.
Fidelity followed suit this month with an account similar to what Schwab is offering but with a 3.5 percent interest rate.
The new Fidelity account is currently being offered to a portion of Fidelitys brokerage customers, although company officials say non-Fidelity customers are welcome to apply for it. The account can stand alone, but it is meant to be linked to a customers existing Fidelity brokerage and IRA accounts, permitting better short-term cash management.
The new investor checking accounts take aim at the low interest rates banks have traditionally paid their customers on checking balances. Bankrate.com said yesterday that the national average on interest checking accounts was 2.13 percent, but most of the major banks in the Boston area are paying well below that.
Bank of America pays 0.05 percent on its standard interest-bearing checking account, while Sovereign Bank, TD Banknorth, and Citizens Bank all pay 0.1 percent. Bank of America offers its brokerage customers several options to earn more interest on their cash, as much as 4.63 percent with one noninsured money market fund. But most of the options require a balance of $50,000 just to avoid annual fees. To receive the 4.63 percent rate, a customer has to maintain a $100,000 relationship with the bank.
Internet banks and ETrade offer rates similar to those being provided by Fidelity, but their accounts come with tighter restrictions. ETrade, for example, requires a $5,000 balance to receive a 3.2 percent interest rate. ING Direct offers 4 percent on its Electric Orange checking account, but access to ATMs is more restricted than it is at Fidelity and customers must dispense entirely with paper checks.
This is a next-generation product, better than traditional checking, said Sanjiv Mirchandani, president of the growth business group at Fidelity.
Customers can set up account thresholds, alerting them when excess cash is available for investment in funds with higher returns or alerting them when the balance dips too low and a cash infusion is needed to avoid bouncing checks. If a check does bounce, Fidelity officials said, they would refuse to pay it but they wouldnt impose an additional bounced-check fee on the customer as many banks do.
Customers conduct all their transactions with Fidelity, but their money is actually held by Fifth Third Bank in Cincinnati, which also will provide customers insurance on their deposits up to $100,000 through the Federal Deposit Insurance Corp.
Fidelity says it will refund all ATM fees except foreign transaction fees to customers who use ATMs carrying the Visa, Plus, or Star logos. Those networks blanket much of New England.
The biggest drawback of the Fidelity account is the lack of brick-and-mortar locations for banking. Customers depositing checks would have to either drop them off at the companys 118 investment centers (eight in Massachusetts) or mail them in.
The 3.5 percent interest rate also is not fixed, but Mirchandani said the account will always be priced aggressively. This is not an introductory or teaser rate, he said.
Bruce Mohl can be reached at email@example.com.