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Seeking a higher rate? Bank won’t always steer you online

Maura McCormick visits a Salem Five branch; some customers rely on call center staffers like Jennifer Silveira.

Photos by Barry Chin/Globe Staff

Maura McCormick visits a Salem Five branch; some customers rely on call center staffers like Jennifer Silveira.

Deymond Lashley has never set foot in a Salem Five Bank branch — or even the bank’s hometown of Salem, for that matter.

But when the New Yorker started hunting for high-paying online savings accounts, he discovered that Salem Five’s Internet banking division, Salem Five Direct, paid 1.25 percent a year, one of the highest rates in the country. He set up an account and locked in the rate last month.

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By contrast, Kathleen Harrah, a Beverly resident, set up an account with Salem Five in person at a branch near her home five years ago. But she receives only 0.15 percent a year in ­interest, far less than Lashley’s rate.

Told of the better deal online customers get, Harrah paused. “I don’t know how I feel about that,” she said. “It would be nice to earn a higher rate.”

Salem Five is one of more than a dozen banks across the country that have set up separate Internet banking units that offer sharply higher rates for customers willing to bank exclusively online. Banks sometimes do so without telling their customers at traditional branches about the online rates.

Northeast Bank of Lewiston, Maine, launched an Internet unit in Boston last year, called ableBanking, which offers customers just under 1 percent a year in interest (plus an additional contribution to their favorite charity), compared with 0.10 percent for basic savings accounts at brick-and-mortar branches in Maine.

In Oklahoma, Bank of the Wichitas has set up an Internet unit called Redneck Bank, which advertises that “bankin’s funner” and pays 1.1 percent interest, more than double what it pays customers at its branches.

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Capital One later this year plans to start opening at least a half dozen “cafes” in Greater Boston offering espressos and free Wi-Fi to drive customers to its Internet bank, Capital One 360. The Internet bank is paying 0.75 percent in interest, while customers at traditional branches in other states only get 0.50 percent.

Several banks have launched Internet arms as way to attract additional deposits from around the country to help fund and expand their lending, the main way that banks make money. But since they compete with online banks everywhere, they typically must offer higher rates than brick-and-mortar operations, which primarily compete with banks nearby.

The average rate for Internet savings and money market accounts is 0.65 percent per year, more than triple the 0.19 percent rate for banks and credit unions overall, according to DepositAccounts.com, a consumer website that tracks bank rates and promotions. Online bank accounts also typically carry lower fees.

Bank executives say they can afford to offer higher rates and lower fees for strictly online customers because they don’t need branches and tellers, eliminating expenses. Most institutions won’t let Internet bank customers use their traditional branches, or they charge extra to do so. For instance, Salem Five Direct­ charges its online-only customers $9.95 for any month they use a teller.

That isn’t a problem for customers who exclusively bank electronically via ATMs, online banking platforms, and smartphones. Some banks, including Capital One, point customers to both their traditional bank products and the higher yielding Internet-only accounts.

But other banks try to keep their Internet affiliates out of sight from branch customers to avoid confusion and uncomfortable questions about why the bank pays them lower rates.

For instance, Salem Five never mentions its Internet bank in radio and newspaper ads or signs at its branches. And it’s hard to find any reference to Salem Five Direct on its main website, SalemFive.com.

“We are trying to hit two different segments of the marketplace with two different products that are specific to each of them,’’ said Jay Spahr, Salem Five’s senior vice president of electronic commerce, who oversees Salem Five Direct.

If customers are visiting a local­ branch, Spahr said, it stands to reason they want a bank account that allows them to use tellers and the website.

Still, traditional customers are stumbling across their banks’ Internet divisions and asking whether they can receive higher rates, as well. When questions come up, Salem Five says, bankers try to find out whether customers still use traditional branches, in which case the bank urges them to stick with traditional accounts.

Most of Salem Five Direct’s customers are outside of Massachusetts. For example, Lashley, the Salem Five Direct customer from New York, said he is a “rate-chaser” who constantly shifts money from one account to another to get the highest yields. He said he learned about SalemFive’s recent promotion offering 1.25 percent interest, better than any other bank he saw at the time, from the site DepositAccounts.com.

“If their rate falls, or a bank I know to be better matches it, I would probably move all or most of my money away from Salem Five Direct,” said Lashley, 33.

The bank is now offering 1 percent interest for new customers but is continuing to honor the 1.25 percent promotion Lashley received.

Robert Goldware, a Salem Five Direct customer from San Francisco, found the bank while searching online for higher rates and has never visited a branch. In fact, he said, he has been to the Boston area only once in his life — for a weekend holiday trip in 1978.

“I’ve talked to them on the phone, and they have been exceedingly nice and helpful,” said Goldware, 59, a retired hospital administrator. “If I ever­ come to Boston, I will stop in and say hello.”

But if he tries to make a deposit, it will cost him $9.95.

Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.

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