Wells Fargo has introduced a new way to avoid banking fees. Modeled after Bank of America’s “Keep the Change,” Wells Fargo has adapted Wachovia’s “Way2Save” program as an optional auto-saving program that automatically transfers $1 to a Way2Save account for every debit card, auto payment, or online bill payment transaction. The Way2Save program is now offered in all Wells Fargo markets and gives depositors a new way to waive banking fees.

At the close of each business day, Wells Fargo multiplies the number of qualified transactions that post to your account by $1 and automatically processes the transfer to a Way2Save Savings account.

The account requires a minimum opening deposit of $100 or $25 with an automatic savings option that transfers $1 per day and $25 per month to your savings account. The APY is around 3.00 percent. All fees are waived with the automatic savings program.

This week’s Market Rates Insight National Pricing Indicator report reinforces that Americans are in love with bank deposits. Per capita domestic deposits have nearly doubled in the last 20 years. From 1990 to 2010, per capita domestic deposits increased from $13,274 to $25,479 - an increase of $12,205 per capita or 92%. However, most of the growth in per capita domestic deposits occurred in the last decade (Figures 1 & 2).

In 1990, per capita domestic deposits stood at $13,274, and by the end of that decade, domestic deposits increased to $14,975 per capita - an increase of 12.8%. During the same decade (1990s), US population grew by 13.2% – from 246 million to 281 million. During the decade of the 2000s, per capita domestic deposits increased from $14,975 in the beginning of the decade, to $25,479 at the end of the decade - an increase of $10,504 or 70.1%. However, the rate of deposit growth far exceeded the rate of population growth during
the decade. In year 2000, the US population stood at 281 million and by 2010, it grew to 309 million - an increase of 28 million or 9.7%.

It’s impossible to tell from the available data whether the increase in per capita deposits is because more consumers are saving, or some consumers are saving more. The only way to answer this question is by comparing the number of deposit-account holders, which is proprietary information of each financial institution.

According to a story in American Banker, banks are looking for new ways to keep investors interested. As the economy starts to gain momentum and the Federal Reserve starts to hint that interest rates may rise, investors are starting lose interest in traditional CDs. In response, banks are starting to offer a growing number of alternative rising-rate CD products to try to win back depositor cash.

According to Bankrate.com, this year will see a range of higher opening interest rates among liquid CDs, step-up CDs, and bump-up CDs. The terms for these products vary widely, which means depositors will have to shop around to find the best rate, and banks will have to keep a sharp eye on the competition to stay ahead. According the Bankrate.com senior financial analyst Greg McBride:

“…people should also compare the whole class of alternative CDs with a higher-yielding savings account or with traditional CDs, because rising-rate products generally offer their provisions at a cost in terms of interest. McBride says there is no real correlation between how high interest rates are and how restrictive a product's terms are, making shopping all the more important.”

As we have noted in our research, consumer fear is causing depositors to keep their cash liquid, abandoning long-term CDs for savings and checking accounts even though they have a lower yield. In shopping for CDs, consumers face some of the same considerations. For example, Colonial Savings in Dallas is offering a 36-month CD offering a yield of 1.67 percent with stiff penalties for early withdrawal,which may not seem as attractive as a 36-month CD at 1.3 percent with no penalty fees for withdrawals or a close-out from Suncoast FCU. Consumers are looking to balance yield against liquidity, and the banks are trying to develop products that will appeal based on that balance.

Bump-up CDs are showing a wide rate range from 0.15 percent for a 24-month bump-up CD from Sovereign Bank to a starting rate of 1.36 percent from Ent FCU.

The offering in step-up CDs seems to be the most diverse. PNC Bank is offering a 36-month CD that kicks off at 0.25 percent with increases at six-month intervals to 1.4 percent, offering a yield maturity of 0.82 percent. On the other end of the spectrum, American Airlines FCU is offering a 36-month CD that starts at 1.76 percent and rises in two steps to 2.78 percent; total yield is 2.27 percent at maturity.

Juniper Research recently posted a video white paper on the emergence of NFC, short-range near-field communications technology that will turn your cellular phone into a mobile wallet. Predictions are that this technology will be delivered in chips to turn cellular handsets into mobile purchasing tools very soon. In France, they are predicting sales of 1 million smartphones with NFC capabilities by the end of this year.

While NFC technology has been around for some time, impediments to market include security concern. What happens if you lose your cell phone or can someone else hack into your wallet? Another major concern Juniper has identified is the business model. Enabling a mobile wallet requires cash to move between financial institutions to retailers through wireless carriers, with the aid of handset manufacturers. There are a number of parties involved in this type of transaction, which makes developing a universal business model tricky.

However, Juniper is promising rapid growth for mobile wallets. In three years one in five smart phones will be equipped with NFC technology, primarily in North America, Asia, and Europe.

Not long ago we blogged about American Express launching Serve, a new e-payment service designed to allow users to make payment from their mobile phones. This week American Express, Verizon Investments, and Roger Ventures stepped with $19 million, the latest funding round for tech start-up Payfone. Apparently PayFone has raised $40 million since it was launched in 2008, and the company is well on its way to launch a viable mobile payment system.

According the latest report on VatorNews,

“Payfone’s mobile payments platform, called SmartBill, aims to be as seamless as credit cards for consumers and even more accurate for merchants and operators. It’s secure too: the service ties every device’s SIM card, device ID and location to each account, so Payfone can track suspicious behavior.”

The folks at Payfone note that while there are 2 billion worldwide credit card holders, there are 5 billion people with cellular phones. They anticipate that mobile banking will not only be more convenient for consumers but will open up a whole new market: “This isn’t just about making payments convenient for the current market, it’s about expanding the size of the market by enabling millions more people to pay on the go with a device they already own.”

What’s more, it will mean that more players will be getting involved in the business of moving money and competing with traditional banks. Payfone is looking to bring cellular service providers into the mix, cutting them in on a new revenue source in exchange for enabling mobile transactions.

As part of the funding deal with American Express, it also means that Payfone will be bringing mobile payments and authorizations to the new American Express Serve digital payment service. Serve works much like PayPal for mobile phones, allowing users to use the website or iPhone/Android to send money to an account, or another individual. What Payfone brings to the party is the ability for consumers to tie their actual mobile phone number to different payment methods, so they can use their phone number to pay for goods and services at the checkout counter.

Suddenly the pay phone has a whole new meaning.

In this week’s National Pricing Indicator report, new research shows the gap between the average Internet rate (pure cyber institutions) and the national average deposit rates at traditional institutions diminished over the past four years. In March of 2007, the national average rate of Internet deposits was 3.50%, compared to the branch average rate of 3.16%. By March 2011, the national average Internet rate was 0.58%, compared to the branch average rate of 0.64%.

Although the national average deposit rate decreased in both, Internet and branch institutions, there were variances in the level of APY decreases between the two. The greatest APY decrease in Internet APY occurred in one-year CD, which dropped  from 5.09% in March 2007 to 0.69 in March 2011 - a drop of 4.40%. The smallest decline in Internet rates occurred in high-yield checking, which dropped from an average of 1.13% in March 2007 to 0.43 in March 2011 - a drop of 0.70% (Figure 1).

The greatest APY decrease in branch-average rate also occurred in the one-year CD, which dropped from an average of 4.58% in March 2007 to 0.55% in March 2011- a decrease of 4.03%. The smallest decline in branch-average rate also occurred in high-yield checking, which dropped from an average of 2.28% in March 2007 to 0.32% in March 2011 - a decrease of 1.96% (Figure 2).

A few weeks ago our National Pricing indicator report indicated that long-term CDs, especially five-year CDs, are slowly on the rise. The trend is sufficiently widespread that it could signal inflation is looming.

This week, other indicators also pointed to inflation on the horizon. The benchmark for 30-year fixed-rate mortgages rose 7 basis points to 5.08 percent. Four weeks ago it stood at 5.04 percent. The changes aren’t major and mortgages continue to hover around 5 percent, but they have been creeping upward and may push some buyers out of the market if they exceed 6 percent.

Some industry analysts fear that a more significant rate hike may be on the way. The Federal Reserve has been holding the key interest rate to near zero since 2008, but if the rate rises mortgage rates will follow. Fed Chairman Ben Bernanke continues to downplay inflation predictions, stating that commodity-driven inflation is "transitory" and will stabilize soon. However, a quote in a recent report from Bankrate.com:

“The Fed is "in a bit of a denial when it comes to inflation, but when you look at gas and food prices, it's clear that it's there," said Brett Sinnott, director of secondary marketing at CMG Mortgage in San Ramon, Calif. "When there is too much inflation you can't keep rates at zero."

Members of the Fed are expected to continue to argue about raising interest rates by year-end to combat inflation, or keeping rates low to support the struggling housing market. The minutes from the latest Federal Reserve meeting show that concern over increases in energy and food processes will lead to inflation.

Consumers are liquidating their long-term holdings in favor of keeping their cash liquid in U.S. bank accounts. In fact, according to the findings in this week’s National Pricing Indicator report, liquid cash sitting in savings, checking, and money market accounts is at an all-time high earning less than one half of one percent interest.

In March 2011, total liquid deposits in domestic accounts reached a record high of $5.9 trillion. The increase in liquid account balances is attributed to the increase in new deposit money as well as money that was moved from maturing term accounts to liquid accounts (see Figure 1).

Liquid money now makes up a record 75 percent of total deposit balances in U.S. bank accounts. In the last three markets from March 2009 to March 2011, nearly 13 percent of total deposits shifted from term accounts such as CDs to checking, savings, and money market accounts. In March of 2009 during the last recession, liquid account balances make up 62.2 percent of total deposits. By March 2011, liquid account balances as a percentage of total balances reached a new record of 75 percent (see Figure 2).

This record growth in liquid accounts comes at a time when the average interest rate on liquid accounts is less than half a percent. This is an indication that consumers are not confident enough in the prospects of economic recovery, and prefer to have more of their money readily available in case of an immediate financial need or personal disaster.

Last week, we reported that Generation Y members are not as enamored with credit unions as older CU members. One reason is the number of alternative banking and banking-like products that are emerging on the market. As more people turn to the Web for everything from conversation to currency, online services like PayPal and Web-loadable pre-paid cards like Netspend are making it easier than ever to access and spend money without the benefit of banking.

This week, American Express is the newest company to throw it’s virtual wallet into the alternative banking arena with the launch of Serve. Serve is the perfect banking alternative for the 21st century, allowing customers to transfer money to others and make payments from their mobile phones. It’s apparently aimed at customers who use cash, checks, and debit cards rather than traditional credit cards. This from CNN Money:

“Mobile payments are a new direction for AmEx as it tries to get a toehold in a rapidly growing market. Research firm Generator Research expects mobile payments to reach $633 billion annually by 2014, with 490 million customers using them.

“AmEx's Serve is meant to capture some of that burgeoning market. It also puts the bank squarely in competition with e-payment king PayPal. Serve grew out of technology AmEx picked up last year through its $300 million acquisition of Revolution Money, a PayPal rival that focused on person-to-person payments.”

Visa introduced a similar peer-to-peer payment alternative a few weeks ago, and Google announced it is partnering with MasterCardfor new banking technology for the Android. What will make these services successful (other than their novelty factor) is convenience and lower fees. According to BankInnovation.net:

“To lure in people to Serve, AmEx, for one, said it's dropping "most consumer fees" for the first six months. After the that time elapses, the fees will include:

- Putting money into a Serve account: 2.9% + 30c/per load, discounted to 0% for cash, debit and ACH; and
- ATM cash withdrawal (after first one each month free): $2.00.

“In addition, Serve won't have fees for a number of financial services actions, including: opening an account, monthly fees, P2P transactions, establishing up to four sub-accounts and widget usage.”

Given the pressure on banks to raise fees to make up shortfalls from other revenue sources, this doesn’t look so bad. In fact, it’s competitive with what most banks have indicated they will start charging for ATM fees. And you can’t beat the convenience. Banks are going to need to find a way to compete in the e-wallet business to stay ahead of these new competitors.