CD Rate ‘War’ Reveals Bank Competition

The higher-than-average rates for certificates of deposit that have been dangled before San Diego County residents recently have been described by one banking magazine as proof that some of the state’s largest banks are waging a “classic Wild West range war” to boost their share of total deposits here.

Executives at the three banks that last month boosted CD interest rates in the county described the war as more of a battle. And San Diego’s three major savings and loans, which control the majority of the deposits, have been content to sit quietly on the sidelines.

War or battle, the heftier interest rates introduced by Wells Fargo in early February underscore how fierce the competition has grown in lucrative markets such as San Diego County.

Wells Fargo, which entered February with a statewide, 6.5% interest rate on six-month CDs of at least $10,000, kicked off the fight with a “San Diego only” rate that hovered near 8.25%. Security Pacific and Bank of America quickly followed suit with rates of 8% or higher.

But by the end of the month, Bank of America and Security Pacific had withdrawn from the fight, leaving Wells Fargo the only bank offering the higher rate.

Financial institutions typically have reserved price wars for the statewide introduction of new products such as individual retirement accounts, said Nancy Shepard, a spokeswoman for the California Bankers Assn.

But the localized outbreak of higher CD rates--during a time when interest rates were drifting down--was “very unusual,” said Sue Taha, a spokeswoman for Security Pacific, which matched Wells Fargo for most of February. “But then, you are seeing a lot of unusual things these days because we’re all looking at niche markets very aggressively.”

Wells Fargo, Security Pacific and Bank of America engaged in the brief skirmish “because they’re obviously trying to get a little bit better (market) position,” according to Gerry Findley, a Brea-based banking industry consultant. “But it seems to be kind of juvenile.”

Competition for deposits in the county heated up when Wells Fargo introduced the heavily advertised “San Diego CD,” a package that promised a higher-than-average interest rate and a special interest-earning checking account.

The ad campaign promised to deliver “more (value) than you’ll find at Home Federal, Great American or Bank of America.”

Requirements Imposed

The CD offer wasn’t without a few catches: The higher rates applied only to new customers who would deposit at least $10,000 for a minimum term of six months. At the end of term, the CDs would roll over at the prevailing statewide rate.

And the CDs were only available to San Diegans. That meant Wells Fargo politely turned down out-of-towners--including a French tourist who showed up at a local Wells Fargo office with a “San Diego CD” newspaper advertisement in hand.

“We explained the situation to him and put his money in a CD at the rate that’s available elsewhere in the state,” according to Tom Byrne, a San Diego-based marketing vice president for the bank.

Wells Fargo, which continues to offer a special San Diego rate that is about 1.5% above that available elsewhere in the state, won’t say how many new customers it has attracted. But bank executives are “happy with what’s going on,” Byrne said.

Bank of America and Security Pacific quickly offered their own high-interest CDs for San Diegans. But Security Pacific on Feb. 26 returned to the 6.5% available elsewhere in California. And by early March, Bank of America’s San Diego rate was only a whisker higher than its statewide rate.

San Diego-based Home Federal Savings & Loan, Great American First Savings Bank and Imperial Corp., the parent of Imperial Savings & Loan, ignored the rate fight, as CD rates offered by S&Ls; drifted down from a high of about 7.5% at the start of February.

“We don’t engage in rate wars or geographic product pricing,” said Home Fed spokeswoman Monica Wiley. “That’s not a game we wanted to play.”

Home Fed employees combatted Wells Fargo’s heavily advertised 8.25% CD by “showing (customers) that the net effect of their rate versus ours . . . resulted in maybe about $40” in additional interest, Wiley said. Home Fed employees also reminded depositors that Home Fed’s 54 offices in the county far outnumbered Wells Fargo’s total of 18.

Imperial Corp. of America, the parent company of Imperial S&L; pushed customers who were considering a shift to “remember our (interest rate) performance since the first of the year,” according to Charlotte Wingfield, a senior vice president of retail bank operations with Imperial. “We showed our good customers that our performance since the first of the year has been better (than Wells Fargo), with the exception of when they introduced” the one-time only rate.

“Our (deposit) base is now way up before where it was when Wells started it all,” Wingfield said.

Not surprisingly, however, all parties claimed victory.

“We wanted to do a little tree-rattling to get people’s attention,” Byrne said. “It’s all part of our effort to get people in San Diego to think about Wells Fargo.”

Wells Fargo’s initial advertisements did cause a “slight net outflow at the beginning,” acknowledged California First Bank Vice President Larry Boggs. “But that reversed, and any impact on us was minimal.”

Security Pacific advertised its own high-interest CD product in San Diego “because we didn’t want to be underpriced,” Taha said. “We did it defensively because we expect to (remain) a highly competitive player in the San Diego market.”

Bank of America, which “typically doesn’t follow every blip in a local market,” responded initially in order to maintain its market share in the county, according to a spokesman.

San Diego Trust & Savings, San Diego’s largest local bank, did not match the higher rates, “because you don’t need to match unless you’re afraid you’re losing accounts and deposits,” Chief Operating Officer Dan Herde said. “We don’t really have a high percentage of ‘hot’ money” that customers constantly transfer to catch the highest available rate, he said.

Wells Fargo isn’t sure how long the higher rates will apply. “This hasn’t been done before, so we’ll take it one step at a time,” Byrne said. “San Diego is such a fantastic market that we want to (control) a bigger part of it.”

Significance Downplayed

Representatives at competing institutions downplayed the significance of Wells Fargo’s campaign.

“Generally speaking, consumers are not willing to go to the trouble of taking money out of a bank just to make a deposit at a bank for the (slight) amount of interest that they’re going to enjoy,” Boggs said.

Bank of Southern California, a San Diego-based institution with about $63 million in assets, realizes it “is not big enough” to fight an interest rate war, a bank spokeswoman said. But she said the bank does compete through better service and can “give customers answers immediately, whereas (Wells Fargo) might have to go all the way to San Francisco for an answer.”

Representatives of various institutions fighting for market share in San Diego seemed to agree that most customers with multiple accounts at one institution probably wouldn’t switch all of their accounts simply to enjoy a one-time interest rate.

One bank executive, who asked to remain anonymous, suggested that San Francisco-based Wells Fargo should not be surprised if a competitor unveils a similar high-interest rate campaign in its own backyard.

“Right now it’s more of a humorous ‘what-if’ idea,” the executive said. “But if (someone) did it, Wells Fargo would have a lot more to lose than anyone in San Diego.”

Byrne defended the rate campaign as an important part of Wells Fargo’s push to become better known in San Diego. As part of that effort, the bank recently boosted its charitable contributions in San Diego in order to show its “commitment” to the county, he said.

On a win-loss basis, only San Diegans seemed sure to have benefited from the relatively brief fling with the higher rates.

Those who took time to track the banks’ advertised six-month CDs did find rates that, depending on day-to-day market conditions, were nearly two percentage points above those found elsewhere in the state. But the higher rates applied only to new customers, and they produced savings only for San Diegans who didn’t have to pay an early-withdrawal penalty in order to free up funds for a new CD.

To consumers who regularly monitor CD rates, the San Diego offers represented yet another way for consumers “to beat the banks at their own game,” according to Martin Bradshaw, who publishes Rate%Gram, a San Diego-based newsletter that tracks CD and money market interest rates.

It takes time and effort to find high rates, Bradshaw acknowledged. “But lethargy is the anathema to the saver. If you become complacent, the banks will walk all over you.”