Bank of America Brokerage Pitch Is Convenient, but Ties Up Funds
October 14, 2006; Page B1
There’s a new free-trade zone in the U.S. Now, you’ve got to figure out whether you want to do business there.

On Wednesday, Bank of America started giving away up to 30 free online stock trades per month to anyone with at least $25,000 in one of the bank’s deposit accounts. The offer’s good in 10 Northeastern states and will roll out nationwide by February. Several of the bank’s competitors saw their stock prices drop, reflecting investors’ sense that Charles Schwab, E*Trade and the like will have to match. Almost immediately, both declined to do so. We’ll see.

So what’s behind the price cut? Big banks want more customers to house their investments there, too. Meanwhile, online (and old-fashioned) brokers are trying to persuade more customers to borrow mortgage money and conduct everyday checking with them, too. The question for consumers is whether the convenience of doing everything in one place is outweighed by lower interest rates or higher fees.

To answer it for Bank of America, check some of the finer print in its offer: The only free trades are the ones you make online; you can’t use a broker. Then, you need a cumulative total of $25,000 in “deposit” accounts. Your stocks and mutual funds don’t count. Here’s what will: checking, savings and bank money-market accounts; certificates of deposit; small-business deposit accounts; and individual retirement accounts that only contain FDIC-insured products like CDs.

It’s a long list, but $25,000 is a lot to keep in cash-like vehicles. That’s particularly true given that Bank of America doesn’t offer the highest interest rates in the land. If you could do one-half of one percentage point better anyplace else, in a year you’d lose $125 for every $25,000 invested at the bank.

That $125 would pay for a dozen or so trades at many of Bank of America’s competitors. Given that over half of all brokerage customers make five or less trades per year, according to Dan Schatt of research firm Celent, they’d do just fine by staying put.

For those who buy and hold mutual funds, it’s worth considering another factor: While stock and exchange-traded funds qualify for the free trades, not all mutual funds do. BofA’s brokerage arm lets customers trade over 1,200 funds free, though here too it isn’t the most generous industry player.

Still, active stock traders who, for whatever reason, need or want to keep lots of cash on hand, could benefit here. Also, a cash-hoarding investor who also rebalances a portfolio stocked with ETFs twice each year might save money on those trades. Then again, they could make more by going elsewhere and setting up an online savings account for their cash that pays more than Bank of America does on its accounts.

Tim Maloney, president of the bank’s investment-services group, says he figured that people would look solely at the stock-trading aspect of the bank’s move at first. “But this is more about long-term customer relationships,” he says, with “those that will appreciate the breadth and depth of what we offer and want to consolidate.”

Indeed, the bricks, the mortar, the history and the long list of bank services offer convenience and a degree of comfort. The question you have to ask yourself is whether they will make you more money

http://online.wsj.com/article/SB116076989611892216.html

I’m sure there are other details that cannot be shown. But the comparison of Mtg at 5.375% and WAMU’s 5.75% is fairly apple-to-apple I think.

You probably have a long relationship with WAMU. If your deal is not available to most other people, it’s not helpful.

I’m simply doing apple-to-apple comparison. Using 15/30 years fixed is a very good data point. If you can beat on 15 or 30 years fixed, usually you can beat on other types of loans. Other types of loans have other misc. that you need to pay attention to, such as the margin rate, or type of index, etc.

I’m not sure what you meant by 5/1 I/O ARM. At Mtg Capital, the rate for 5 year fixed ARM is 5.25% for 1.0% loan point, or 5.625% for 0 point. I think it’s better than 5.75% even assuming that you got WAMU to waive 1.0% origination point for you.

Not sure where you get those numbers from. Maybe you could cut & paste the link?

The 15 year fixed with 1 point was 5.375%. Why wouldn’t you get a longer term fixed, when the 5 year fixed is at 5.25% for a tiny fraction of 1/8 interest (or in your case, 5.75% even higher for a shorter term)?

Mtg Capital is not the only lenders out there. If you use Costco lending services, theirs is almost as good as Mtg Capital when I compared 3 years ago.

Now, for comparison’s sake, I am in the process (coincidentally)of refinancing a SFR rental in Arrowhead Ranch with WAMU: 5-1 I/O ARM quoting a 5.75% (locked) and a 6.849% APR compared to Mgt Cap @ 5.75% and a 7.151 APR for owner occupied. WAMU won that one, hands down.

Larry, please do some homework before you post your comment. Once you find a better deal, you could let people know. But a terrible deal is not good for anyone.

Thanks.