Is the Capital One savings account being advertised a good deal?
Capital One has been aggressively marketing a variety of their services. It seems one can’t turn on the TV or listen to the radio without encountering an ad for some type of Capital One product. There are the Capital One Viking Horde (What’s in your wallet), Alec Baldwin flogging the Venture Card, and comedian Jerry Stiller essentially reprising his character from Seinfeld as he pushes the Capital One savings account.
Some of the brightest and most creative minds in America work in advertising. Companies spend an enormous amount of time and money to get their products noticed. Using an iconic or easily recognized character is one approach to grab consumers’ attention. Using a loud and abrasive character may seem like an odd choice, as opposed to choosing a well-loved character. But, as the Stiller/Capital One commercials show, it is hard to ignore loud and abrasive (especially when combined with humor). It must be an effective ad campaign, as it is now in its third version.
“Is Your Savings Stuck in the Stone Age?”
Just because an ad gets our attention does not mean that we blindly go out and buy the product. It is important to step back from the commercial and evaluate the product on its own merits and on how it compares to similar products that are available.
A key thrust of the ads is that you can earn t three times more interest than the national average. The interest rate quoted is now 1.10% APY. In addition to the extra interest you earn, the ad touts an additional 10% quarterly bonus you can earn. “No namby pamby rate here, “Stiller shouts.
Few of us are going to turn down free money, but most of us are not going to alter our lives to save a tiny amount. Stiller claims that people not keeping their savings with Capital One are “stuck in the stone age.” He also states that customers with other banks are earning “bupkis” (a Yiddish word meaning “beans”). He has a point; standard savings accounts are currently paying an extremely low rate of interest.
Three Times Bupkis is Still Bupkis
What he doesn’t say is that three times nothing is still nothing. Or, as Stiller would say in character, “Three times bupkis is still bupkis…nada, zip, zero, zilch, BABY.” Well, maybe it is not zero, but it's not much to get excited about.
For example, if you deposit $2,500 into an account that earns interest at 1.1% APY, as Capital One does, you would earn a whopping $27.50 in interest for ONE YEAR. If your money were in an account that earned interest at .36%, you would earn $9.16. Let’s not forget to add in the 10% bonus that you could earn. The ads do not make this crystal clear, although it is in the fine print, that you are earning a bonus on the amount of interest you earned. So, in the example above, your $27.50 annual savings would grow by another $2.75. Right, I can see your mind spinning with possible ways to spend the entire $30.25 bounty or the extra 20 bucks compared to what you earned in a standard savings account! That’s not to say that anyone would turn down a free $20 bill, but it may mean that you are not going to take the time and effort to switch accounts if $20 is all that comes to you.
Other Fine Print
There are some other points you may not notice when viewing the ads. For example, the 1.1% APY interest is only available if you deposit a minimum of $1,000. The rate for balances less than $1,000 is a paltry .1% (truly bupkis!). Other fine print clauses state that “withdrawals are limited to six per calendar month” and you “must have your account open and you either must maintain an average balance of $10,000 each month in your account or own an active Capital One credit card in good standing with at least one transaction per month.” Given the current economy, it seems unlikely that many Americans have $10,000 in liquid savings. Capital One is pushing those people without $10,000 in their account to open up a credit card with them, which seems to be a way to boost Capital One’s profits in its credit card division more than anything.
Earning a tiny amount of extra interest is better than a stick in the eye, but it is not something so significant that it is time to break out the Festivus pole and celebrate.