Exciting trends in the banking industry, notwithstanding the effect of Covid-19 and the long lockdowns on their loan portfolios. More and more transactions are doable online with just internet connection and your mobile phone. In fact, our cellphones have now become our mobile wallets with GCash and Paymaya, enabling us to do purchases, pay bills, send money, etc. Most basic transactions with our trusted banks, such as deposits, intra-bank and bank-to-bank money transfer (via InstaPay and PesoNet), opening and redeeming UITFs, can now be done online as well using the apps of our preferred banks. Nonetheless, the banks we have gotten used to still have hundreds or thousands of branches and ATMs out there. For the more traditional customers, having someone to talk to, face-to-face transactions with tellers, account officers and relationship managers are non-negotiable preferences, and it provides Juan a sense of security in moving and receiving physical cash within the confines of a secured brick and mortar bank branch. Or some people are just afraid to try new technologies, especially if it involves their money.
Well not these 2 new banks, who prefer to be dubbed as digital banks (or digibanks). Yes, finally, digital banks are on the rise in the country, and two of the new digital banks making more noise than the rest are CIMB Bank and ING. These two are attracting many depositors, especially the younger ones because well they are new, non-traditional, because of easy account-opening purely online (branch-less banking) and of course the relatively high interest rates they offer. I think these are good options on where to place our emergency funds while not yet needed.
Higher Interest Rates
Well, relatively higher interest rates compared to traditional banks we know of, for their savings accounts. As of this writing, CIMB offers 3.1% per annum interest rates while ING offers 4%. Both rates are subject to tax. This is comparably higher than the usual 1% or less per annum (also subject to tax) that our savings accounts with traditional banks earn. In fact the 3-4% rates can even beat the time deposits that traditional banks offer.
Why are CIMB and ING doing this?
Well as a bank, they need to raise sufficient deposits so that eventually, they can loan the money to prospective borrowers via personal loan, etc. At least that’s the basic idea behind banking. So they want us to park our money with them, subject to higher interest, and not with traditional banks we have gotten used to.
Why are they giving out high rates?
To entice us to open an account with them. Higher rates as an incentive for us to try them out. I’m expecting that these rates will not last forever, but if I’m not mistaken, the offered rates have been in place for more than a year now. And they can afford to offer higher rates (which is an expense to them) because they have less expenses compared to traditional banks in other areas of banking such as:
- In terms of constructing, opening and operating brick-and-mortar branch,
- Paying the rent to these branches, most of which are in prime commercial locations plus utilities
- Paying the employees manning these branches
- Buying and installing ATMs in branches and in other commercial areas, etc.
All these are costly to traditional banks (I heard one ATM costs more than 1-million, and that’s just the machine). So CIMB and ING have some flexibility to offer higher rates and focus instead in making their online presence and digital banking super secure from hackers (because all their transactions are online). Mind you, traditional branches also spend a lot in making their online banking secure so that’s added cost to them again. So in a sense, the technological trends are favoring the digital banks in having less legacy infrastructure, less overhead costs and operational expenses.
Do I think traditional banks will become fully-digital someday?
It might take time, but right now banks are lessening new branch openings, if at all. I would think they are dedicating more resources in making their mobile and internet banking more secure, more user-friendly, and more capable of handling more transactions.
Will they close their existing branches?
Maybe not in the near future. Maybe after decades when all its customers are millennials and Gen Zs who are very tech-savvy and who grew up accustomed to digital banking. Maybe when even loan applications and loan disbursements have become fully digital. Maybe when depositing and moving millions via an app feels secure enough to the customer. But I think some branches are meant to stay to accept the physical cash from depositors, before it can be moved again and again online.
Back to CIMB and ING.
Ease of Account Opening
I just tried opening a CIMB Bank account because a former colleague of mine works there now. I opened a G-Save CIMB bank account linked to my GCash account. So if you already have a GCash account, just click “Save Money” and follow the account opening instructions. Of course be ready to take a picture of your identification documents.
As for ING, I downloaded their app and started the account opening. I was intrigued by being able to deposit checks by merely taking pictures of it, so I had to give it a try as well.
I hope this ease in account opening trickles down to Filipinos in the country-side, especially the unbanked. Granted that of course they have access to reliable internet. The main purpose is really to entice those who do not have bank accounts yet to open one, to have a banking footprint, so that eventually, they can have access to cheaper loans as well.
Ease of Deposits
I fund my CIMB account via my GCash account, which can be used to “Cash-in” from many banks with such capability for free! (for now). The CIMB savings account will have an account number so I think it can also be funded via Instapay or PesoNet using the more traditional banks. Haven’t tried though because funding it via GCash is so convenient.
ING can also be funded via Instapay and PesoNet, or via their check deposit “picture-taking” where deposited amount can be credited to your ING account in 1-banking day. Using the ING app, just take a picture of your check deposit both front and back (the name in the check should be the same as the ING account name). The app will try to scan the check details and will give you a summary of the information it captured, for your confirmation, or for correction if necessary.
I tried online transfer for the two and the funds got credited real time. I also tried depositing a check with ING and it got credited the next banking day. Subject to cut-off. Very cool and nifty huh?
Haven’t tried withdrawing from ING, I did once with CIMB and it got credited to my GCash, but it should be easy-peasy via bank transfers. I don’t have their ATM cards either, but I heard that for CIMB, you can request for an ATM card (subject to terms) and then you can use it to withdraw in any local bank ATM, free of charge! Cool eh!
Both banks are covered by PDIC up to P500K per depositor.
For Emergency Funds
I think CIMB and ING are good options as a savings account given easy account opening, ease of access, and high interest rates. It can also be a good option as a place to park Juan’s emergency funds (not all of course!).
I think these digibanks are a good place to park Juan’s emergency funds. At least they earn a higher interest rate compared to traditional savings accounts, while just there, waiting for an emergency that hopefully will never come. And they are liquid since they are just a savings account, you just need to withdraw in case of need, there is no lock-in period since it is not a time deposit. Relatively higher interest rates while idle, easily accessible when needed. This is with the premise that the emergency use can accept mobile payments (via bank transfer or GCash or QR code). Otherwise, if actual cash is needed, you will need to transfer the funds to a bank where you can withdraw actual cash, or cash out via your GCash through over-the-counter partners.
Of course Juan can easily say Pag-ibig MP2 have higher rates, or PSSLAI or AFPSLAI or other cooperatives. Or maybe bonds have more competitive rates. Well they are missing the point. Yes Pag-ibig MP2 have much higher rates but they are not easily withdrawable in case of emergency. While we encourage you to open an MP2 account, we do not encourage you to put your emergency funds there. Put your long-term cash there, cash you won’t need in a very long time, cash that is on top of the emergency fund you have built (2x to 6x of your monthly expenses).
PSSLAI or AFPSLAI or coops also have higher rates but they are not easily withdrawable either, and the first two are only available to our uniformed personnel (policemen, military and qualified relatives).
Bonds are likewise long term (2-years or more usually) and has a higher minimum amount (e.g. P50K), and not easily withdrawable, hence not suitable for emergency funds.
ING and CIMB did not pay us to do this post. But if you have extra cash, I think it won’t hurt to open a savings account with either of the digibanks and join the bandwagon in digital banking. Then maybe consider parking some of your emergency funds with them to earn higher interest.
#GrowYourMoney #BeFinanciallyFree #InvestMoneyPH #GYMBFF
Images from Google Play and screenshots from apps.