Goldman Sachs, arguably the most prestigious of the Wall Street banks, just became a little more mainstream.
The institution — more commonly known as a regular investment bank — has just started offering savings accounts and certificates of deposit through GS Bank, a new Internet-based savings bank.
Consumers interested in parking their money with Goldman can now open a free online savings account through GS Bank with as little as $1. Certificate of deposit accounts with competitive interest rates are also available, but the minimum deposit requirement is higher at $500.
In the same way that fashion designers expand their reach with ready-to-wear clothing, GS Bank gives the average consumer access to the aspirational Goldman banking brand, known for its high-end wealth management and investment banking services.
But consumers hoping to flash their Goldman Sachs debit card next time they’re out with friends may be disappointed. Despite the brand clout, Goldman’s online bank is simply that: online. GS Bank will not have physical locations, and accounts will not come with checks or ATM access.
So should you hand your money over to Goldman?
The big draw for savers is likely to be the competitive 1.05 percent interest rate offered by GS Bank, which is much higher than comparable accounts at traditional retail banks like Bank of America, Chase and Wells Fargo.
According to the FDIC, average interest rates on savings accounts nationwide are dismal, at 0.06 percent. For those currently earning pennies on their savings, an online savings account is likely a much better alternative.
“If you're letting your money languish in an account that’s earning next to nothing, you’re leaving money on the table,” said Greg McBride, Bankrate.com’s chief financial analyst. “You can set it up online in a few minutes and link it to the checking account that you have at your current financial institution.”
Unlike applying for a new credit card, opening a new savings account does not hurt your credit score. The only potential downside is the hassle involved in switching to a new bank, although it may not always be worth making the switch, according to Dan D’Ordine, a certified financial planner based in New York.
"In this extremely low-interest rate environment, it doesn't really pay to chase savings accounts that pay half a percent more than what you're currently getting,” he said.
To determine if switching is right for you, begin by reviewing your current account statement. If you’re paying a monthly fee or not earning interest at all, it’s time to take your business elsewhere.
“If this is what gets consumers’ attention and gets them to shop around for a better savings account and utilize online savings to earn a better return on their rainy day fund, then that’s great,” said McBride. “Everybody needs an emergency savings account, and online savings accounts are the best place to put that money.”
For its part, Goldman is hoping to attract new customers for other financial services, such as mortgages and consumer-lending products.
And the institution, which is seen as the world's most powerful investment bank and was once described by Rolling Stone as “a great vampire squid wrapped around the face of humanity,” is also likely eager to soften its image and bring in money from more mainstream savers.
“It's exciting to watch a major player like Goldman Sachs pivot like a startup and develop new businesses and revenue sources that traditional investment banks might not have considered in the very recent past,” said D’Ordine.
Goldman’s new retail banking venture isn’t starting from scratch, however. With its recent acquisition of GE Capital Bank, GS Bank already has $16 billion of cash deposits on hand. This new push into the world of online banking pits Goldman Sachs against other well-known financial institutions, like American Express and Sallie Mae, in an attempt to draw in new customers with the promise of an interest-bearing savings account.
“There are plenty of household names that have been and continue to be in the online banking space,” said McBride. “This is new for Goldman, but this [type of financial product] isn’t new. Online savings accounts have been around for over twenty years.”