Investing behemoth Goldman Sachs' (GS) venture into online consumer banking may lack the perks of your typical checking account, but it does have one big thing going for it: A fat yield on its savings products.
"The account is very competitive, with no minimum deposit and being available nationwide," Greg McBride, chief financial analyst at Bankrate.com, said in a phone interview.
The savings accounts stem largely from Goldman's acquisition this year of GE Capital Bank's online deposit platform, with $16 billion in deposits, as General Electric (GE) CEO Jeff Immelt winds down most of the manufacturer's sprawling finance business.
"This transaction increases the funding diversification and strengthens the liquidity profile" of the firm, Goldman Sachs treasurer Robin Vince said in a statement after the deal was completed. "We are pleased to add the capability for accepting online deposits, a strategic priority."
Since then, GS Bank has accepted $1 billion in new deposits, the Associated Press reported on Monday.
Bigger banks typically are "swimming in deposits," so they don't need to pay a higher rate of return to bring in more money, McBride said. Both Goldman and cross-town rival Morgan Stanley are relatively new to the business, however, since they operated as investment banks before the 2008 financial crisis.
Indeed, while Goldman is one of the six largest U.S. banks and garnered $33.8 billion in revenue last year, almost all was from traditional Wall Street businesses, from stock and bond trading to wealth management and merger advice.
In addition to its interest on savings accounts, Goldman is also paying consumers 1% for 12-month certificates of deposit, and 2% for five-year CDs. According to GS Bank's website, the company has no transaction fees, its deposits are covered by the Federal Deposit Insurance Corp., and money can be transferred between bank accounts.
There are, however, no ATMs, mobile banking, check writing, or online bill payment options for the accounts.
Online savings accounts, which banks can market nationwide via the Internet, have proven to be quite effective at building deposits, McBride said.
"We've seen a number of smaller, local and regional banks do this, but also a number of household names in the financial industry that have banking subsidiaries have gone this route in the past," he said. "Goldman Sachs is kind of the latest to go down that path."
For deposit savings accounts generally, "the most competitive offerings don't come from the biggest banks," McBride said. "They come from smaller banks that are using those higher yields to attract deposits. So there's a real incentive for consumers to shop around."
Interest on savings accounts stands to climb as the Federal Reserve raises short-term interest rates, McBride said. There is "some likelihood that those top-yielding accounts will nudge higher," he noted.
The central bank has indicated it may increase rates as many as two times this year, though the market has largely discounted the odds of any change at this month's meeting of the monetary policy committee.
See full coverage on the Fed's upcoming interest-rate decisions.