E*Trade Shifting Out of Banking Business?

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E*Trade (Stock Quote: ETFC) isn’t the first financial services outfit you might think of when the term “bank” drops into the conversation.

But E*Trade does have a banking arm — for now. Reports coming from E*Trade confirm that it's dropping its certificates of deposit and its online bank savings account programs. Here’s an update, and what it means to E*Trade bank customers.

In February, E*Trade sent a letter out to customers saying that it will not only discontinue its certificate of deposit program, it also (as of March 7, 2010) has pulled the plug on its Complete Savings Bank account, shifting customers over to Discover Bank (Stock Quote: DFS). According to E*Trade, customers with current CD investments won’t be impacted — the bank is only closing out its CD program for new investors.

Analysts say that the E*Trade shift out of banking could be the tip of an iceberg. With both the White House and Congress banging the drum for increased regulation of big banks, the feeling on Wall Street is that there isn’t a bright future for financial institutions that offer both retail banking along with investment banking services.

A visit to the E*Trade Web site reveals no obvious notice or even a press release signaling either the CD or savings account news. But the online banking giant did send out a form e-mail to its banks savings account customers in February that read:

"We are writing to let you know that your E*TRADE Bank account referenced above will soon be transferred to Discover Bank, and become a Discover Online Savings Account. This follows our plan to focus more exclusively on providing optimal investing solutions to our customers. We expect the transfer to occur on or about March 7, 2010."

So far, there’s no solid confirmation that E*Trade’s checking or money market programs will suffer the same fate, but the handwriting would appear to be on the wall. The bank has cut interest rates across the board on its CDs and deposit bank accounts in recent months. Judging from the language in its e-mail to savings account customers, (particularly the line about E*Trade focusing “more exclusively on providing optimal investing solutions”) it looks like it will exit those markets, as well.

There is some good news for E*Trade savings account customers who woke up this morning as Discover Bank customers. While Discover has lowered its online savings account from 1.6% to 1.35%, that’s still light years ahead of the 0.5% that E*Trade savings account customers were earning.

For more information on how the account transfer, and to get a good look at Discover’s bank rate deals, visit the Discover Web site.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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