Banks grow deposits through rewards programs

Faced by difficulties in obtaining deposits due to a tight economy and competition, banks are rolling out rewards programs designed to lure dollars back to them.

Banks are using more innovative ways to reward customers for opening and maintaining accounts and using debit and credit cards.

Some

ING Direct, for instance, gives customers a $25 referral fee if they provide e-mails of people who go on to open accounts.

Others offer points simply for having a checking account.

"It's been so difficult over the last two years to bring in deposits," said David G. Danielson, president of banking consulting firm Danielson Capital, based in Vienna, Va. "This is a new twist on the toaster giveaway."

Rob Julavits, a spokesman for Citibank, said his bank's rewards plan launched a few years ago - called the Thank You program - gives customers points that can be redeemed for rewards simply for having checking or savings accounts, certificates of deposit or for paying bills online.

The more "relationships" you have with Citibank, the more points you obtain monthly, although you earn additional points for every debit card purchase. "Points accumulate quickly," Julavits said. "They're easy to redeem."

Chase in June rolled out a program that rewards checking account customers for using the bank's other services through discounts and incentives.

Chase checking account holders get better rates, more rewards and bigger discounts on nearly all other products offered through the branch, according to Michael Cleary, head of product development and marketing for Chase's consumer bank.

"Our checking customers are the foundation of our business," Cleary said. "So, we created Chase Exclusives to deepen our relationship by delivering benefits that are real, quantifiable and immediate."

He said customers could save $2,000 or more by using Chase for "basic financial needs" such as mortgages, home equity lines and certificates of deposit.

Chase checking customers get discounts of 0.125 or 0.25 percent on mortgage interest rates, discounts of 0.25 or 0.50 percent on home equity loans or lines of credit as well as a free rewards program on a Chase debit card and higher interest rates on certificates of deposit, Cleary said.

They also get triple rewards for purchases in five spending categories with the Chase Freedom credit card.

"What matters to our customers is getting a good value on the right product for their needs and recognition for the business they do with us," said Bill Wallace, a Chase Card Services executive.

Banks also are ramping up rewards for debit cards much the way they've long offered them for credit cards. "They make money when you use a debit card," Danielson said.

Andrew Kaplan, executive vice president of 217-branch, Westbury-based New York Community Bancorp, said rewarding people for debit card use does more than simply increase card revenue through fees.

"There's a bigger piece to this. Your card becomes the choice for the customer," Kaplan said. "If I as a customer am going to choose that debit card, I need to fund that card. So we should see an increase in deposits. We've seen lower customer turnover. We see higher average core deposits with programs of this nature."

But Kaplan said rewards programs that rely on points can create a complicated process.

New York Community rewards customers with cash back by depositing money into the checking account every time they use their debit card.

"It's easier to manage money than gifts. And it's an immediate payment," Kaplan said of the bank's program. "Our customers don't need to do anything to receive the benefit. And it separates us from the others."

Credit: Claude Solnik