As consumer confidence in big banks larded with distressed mortgage assets weakens, smaller community banks and credit unions are trying to win the hearts and minds — and deposits — of consumers.
It’s like Madison Avenue meeting Main Street as these smaller banks advertise online, over the airwaves and in local papers offering “safety, security’’ and protection from the financial markets’ steep downturn.
At a time of global financial disaster when major institutions have teetered — and sometimes collapsed — under the weight of billions in soured mortgage loans and related securities, the small-town, conservative banker who still knows his customers by name looks appealing.
Maybe he missed the boat on the real estate lending gravy train, but now he’s got less to worry about on his bank’s balance sheets, the thinking goes. And the new increase in limits on federal deposit insurance — to $250,000 per regular account from $100,000 — adds to smaller banks’ allure as safe havens and gives them another edge to compete for deposits with the big national banks. “Bank safety scratches where it itches for the consumer right now,” says Greg McBride, senior financial analyst at Bankrate.com based in North Palm Beach, Fla.
To be sure, big banks also are reaching out for new depositors and are advertising new rates on certificates of deposit and special account packages. And smaller institutions certainly aren’t without financial challenges: Small banks have been especially hard hit by losses on heavy concentrations of construction and development loans — the fastest-growing category of troubled loans for U.S. banks. Most of the 13 federally insured banks and thrifts that have failed so far this year are small institutions.
Yet the flurry of enticements by community banks and credit unions is striking, with advertised rates of between 3.5 percent and 4.3 percent for various certificates of deposit. By comparison, Bankrate.com reported that the annual percentage yield on six-month certificates of deposit was 2.13 percent in the week ended Wednesday, Oct. 8, and yields were 2.56 percent on one-year CDs.
Millennium Bank’s Web site touts a “high carb” money-market account: “When it comes to your Money, more Bread is Good.” The Reston, Va.-based bank says its management decisions are made locally while offering attentive personal service to customers, and its ad asks if consumers “fear the slumping market?”
“We’re seeing a level of anxiety among some of the customers coming into community banks,” says Steve Scurlock, executive vice president of the Independent Bankers Association of Texas. Some of the Austin-based group’s roughly 600 member banks are running full-page ads stressing that they’ve been around a long time, survived the Great Depression and have strong capital levels, Scurlock says.
Chevy Chase Bank, based in the Maryland suburbs outside Washington, is offering “safety and security” along with special interest rates on certificates of deposit. As with other banks, conditions like minimum balances apply to qualify for the highest rates.
“In today’s volatile market, you may feel that you can’t be sure about anything,” newspaper ads for the bank sympathize, adding that both peace of mind and competitive rates on deposits are available there.
The National Association of Federal Credit Unions provided radio spots to its roughly 8,000 members describing them as “a safe place to save and borrow at reasonable rates.”
Black Investor Survey
A poll by Ariel Investments L.L.C. and the Charles Schwab Corp. found that 62 percent of the Blacks surveyed own stocks or mutual funds, lagging the 82 percent of white respondents who said they do. Executives at Ariel Investments, a Chicago-based African American-owned investment management firm and mutual fund company, say Black stock ownership remains a weak spot, as it has been throughout the 11 years the company has been sponsoring the annual survey.
One marked change: The survey has shown historically that Black investors have expressed a preference for real estate investments over the stock market. This year that preference fell to a new low, with just 39 percent of Blacks labeling real estate the “best investment overall.” Their preference stood at 61 percent at the height of the real estate market in 2004.
Blacks are on equal footing with whites when it comes to accessing and enrolling in their employers’ defined contribution plans, according to the survey, which was based on interviews with Blacks and whites with household incomes of at least $50,000. About nine in 10 of both Blacks and white who are working have access to a plan such as a 401(k) and of those about 90 percent of each group contributes regularly.
But the median monthly amount that Blacks contribute to their 401(k) plan is $169, compared with $249 contributed by whites. As a result, the median total household savings for retirement reported by Black respondents was $53,000. White respondents had more than twice as much at $114,000.
The results of the nationwide survey, conducted by Argosy Research, were compiled from telephone interviews with 503 Blacks and 506 whites from June 11 to July 13 and carry a margin of error of about 5 percent.