Discount Brokerages Push Savings Products to Investors

Apparently the number one New Year's resolution for discount brokerage firms this year is building assets.

Trying to rebound from an economic environment that had many investors sitting on the sidelines or pulling money out of stocks, Charles Schwab (SCHW), TD Ameritrade (AMTD) and ING Direct began pushing saving campaigns to their clients last week.The personal savings rate in the U.S. has grown to 4.4% and continues to rise and the three discount brokers are seizing the opportunity to entice investors to save a portion of that growing asset base with them.

Schwab is relaunching its "Savings Fundamentals" guide with eight tips for savers. TD Ameritrade is suggesting five strategies to start 2010 on the right track, and ING Direct, which will soon be operating independent of the insurance company in the U.S., is offering up "Five Financial Resolutions for 2010."

All three brokerages have banking operations that would benefit greatly from additional investor deposits. Pushing savings accounts gives these firms another way to increase their account growth, which generally boosts revenue. Encouraging saving through certificates of deposit or other low-risk investment accounts also helps build assets for the brokerages, while taking the emphasis off market volatility.

"The industry has matured, so sometimes it is difficult to find new account growth," says Morningstar equity analyst Jason Ren. He notes that the discount brokers can connect with customers through a bank account, and then introduce them to other services later.

Promoting Saving Could Save the Discount Brokerages

ING Direct released the results of a study last week that said 64% of respondents planned to save more money in 2010 than they did in 2009, and 89% said that building an emergency fund is important.

Pre-retirees, who are looking for safe places to park their cash, may be perfect candidates for this savings push. Many have lost money over the past 18 months as they've gotten squeezed by market losses and savings accounts at traditional banks that are offering interest rates below 0.50%. The discount brokers hope to capitalize on the fact that they offer savings accounts that pay a slightly higher yield than traditional banks. For example, Schwab Bank is paying 1.04% on savings accounts and ING Direct offers 1.25% interest.

"People are still a little bit fearful of the market," says Schwab vice president financial consultant Stephen Johnson.

Investors who want to put their money into something other than a savings or money market account, but need to use that money within the next three to five years, should shop around at different banks to find the best rate on CDs, he said. They can also take a look at ultra short-term bonds and bond mutual funds. If they can tolerate some principle risk, they can consider commercial paper and short-term bonds of one to three year duration.

"We want people to educate themselves so that they can feel confident making the right decisions," said Johnson.

By helping investors save more money in a difficult economic environment, perhaps the discount brokers can also save themselves.
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