The Sun's Financial Diary mentioned that ING Direct has lackluster rates but a 52% market share and asks why.
Here are some possible reasons for ING Direct's strong market share:
- Advertising visibility.
- Brand-name recognition as a "real" bank without having to check FDIC lists.
- Ease of setup (How many people bailout in the middle of other banks' applications?).
- Minimal strings attached (do not have to open a checking account with $10/mo fee, etc.).
- Customer service and ongoing, consistent ease of use, either online or by phone.
- The quick gratification of the sign-up bonus.
- People with low balances rationally value the lack of minimum balances and no fees when compared to the small dollar amount of even an extra 1% on a small balance (it will take a long time before the marginal difference of a higher rate on a small balance will exceed the sign-up bonus).
- People keep token amounts to keep an open account for the referral bonus, which provides social/viral marketing (see advertising visibility).