Banks fight for their share of retirement accounts

Faced with a shrinking share of the IRA market, the banks are starting to fight back. If you want an individual retirement account at American Savings Bank in New York, for example, you can give someone there the account numbers and trustee names of any IRAs you may have elsewhere, and the bank will consolidate them all into one account.

This may be one of the more aggressive moves by a bank or thirft, part of an industry that is fighting hard to recapture and hang on to its share of the burgeoning IRA business.

When IRAs became available to everyone in 1982, and interest rates were in the mid-teens, banks easily captured more than 70 percent of the IRA business. After all, if you were talking about a secure retirement, what could be better than a United States government-guaranteed institution paying rates that could double your money in five years or so?

Then interest rates started tumbling and ``we knew we were up against it,'' says Gloria Pritchard-Becker, vice-president and manager of the IRA-Keogh department at American Savings. ``Rather than try to compete on rates, we had to compete on service and products,'' she explained.

American Savings didn't invent the consolidation idea; any qualified IRA trustee can take the account numbers of other trustees, including banks, mutual funds, insurance companies, and brokers, and have the balances wired into one account. If an investment or a particular account, like a certificate of deposit, hasn't matured yet, the money will stay there until it does mature, then move to the consolidating trustee.

By and large, ``banks aren't doing a very good job'' of keeping their IRA accounts, says Robert Heady, publisher of 100 Highest Yields, a North Palm Beach, Fla., newsletter that follows federally insured banks and thrifts. The brokers and mutual funds have come in with more products and advertising, that is ``more specific, more informative, and more benefit-oriented'' than the banks, Mr. Heady said. As a result, ``banks and thrifts stand to lose even more of the IRA volume.''

To try and prevent that, many banks are trying some of the other weapons at their disposal. The most widely used weapon is not consolidation but stocks and bonds. At some banks, this began before interest rates started diving.

``We developed and put in place a self-directed IRA two years ago,'' said Thomas Howe, vice-president for products and services at Fleet National Bank in Providence, R.I. ``We did this largely for defensive purposes, in anticipation of lower rates.''

At some banks, the desk offering self-directed accounts is in the lobby. At others, it may be on another floor. Wheverever it is, the banks that have them are promoting them heavily, a development not everyone applauds.

``Both banks and most of their customers really belong in CDs [certificates of deposit],'' says Robert Person, banking analyst with Coopers & Lybrand, an acccounting firm. Because the self-directed IRA is being offered through a bank or thrift, he says, many people wrongly believe their money is federally insured.

Self-directed IRAs also don't do much for a bank's bottom line, Mr. Person adds. While the bank does keep part or all of the commissions, and also has a better chance of keeping the customer until rates on CDs are attractive again, it can't make a profit on the money while it's invested in stocks, he contends.

At some banks, the self-directed service is being used to sell other products that carry US government backing, like mortgage-backed securities, and zero-coupon bonds of US Treasury issues.

At the Boston Five Cents Savings bank, for example, an account of mortgage-backed securities was earning a bit over 10.2 percent, a spokeswoman says. The bank is also offering seminars for the public to explain IRAs and the various options, risks, and potential for growth.

Seminars are part of another weapon the banks are using, but one that may backfire: heavy publicity. A bank has to make people aware of its IRA selections through advertising, mailings, and seminars. But as people become more aware of IRAs and become educated about the choices, including mutual funds, insurance annuities, and self-directed accounts run by experienced brokerages, these customers are apt to put their money elsewhere, especially when interest rates are low.

Also, several banks have made arrangements to offer mutual funds through some of the major fund companies, like Dreyfus or Fidelity. But again, customers may decide to invest with those funds directly, using toll-free telephone numbers.

With all the new products, self-directed brokerage accounts, and heavy promotions, the banks and thrifts that do the best job of keeping their share of the IRA business may be the ones that provide the best information, use strong marketing, and stick to their knitting with CDs.

First National Bank of Chicago, for example, has been aggressively promoting CDs for IRAs with interest bonuses added to the IRA balance at the front end.

Other banks are simply offering a better rate on CDs used for IRAs than on certificates outside of IRAs. In Baltimore, for instance, Household Bank, a division of Household Finance Company, was paying 10.05 percent for five-year CDs in an IRA on March 4. With compounding, that comes to an annual effective yield of 10.67 percent.

At some other banks, they're letting people open IRAs by phone or using telephone marketing to boost IRA business. Multibank Financial Corporation in Quincy, Mass., for example, has trained a staff of telemarketers who have helped boost the bank's IRA deposits 15 percent since the first of the year.

Several banks are offering bonus interest rates. At First Texas Savings Association in Dallas, for instance, a five-year CD used for an IRA earns 13 percent interest, but only through June 30 of this year. After that, the rate will float, but the CD will earn at least 10 percent.

Five years may seem like a long time to have money tied up at 10 percent, but with frequent compounding, the actual yield could wind up close to 13 percent. The bank also has bonus rates on 30-month and 18-month CDs placed in IRAs.

And, as tax time gets closer, look for some banks to extend their hours to sign up IRAs. In the last two or three weeks before April 15, many banks and thrifts will stay open until 6 or even 8 p.m. to take last-minute deposits on 1985 IRAs -- and any 1986 IRA deposits people want to make, too.