Banking site MoneyAisle makes some sense

BOSTON -- MoneyAisle is a free new Web service that makes a bold claim: It says it will maximize the interest rates consumers can get on savings accounts by running online auctions in which banks bid for consumers' business.

The idea makes some sense, because a bank generally should find it cheaper to sign up a new customer through MoneyAisle's auction engine than through advertising. In theory, those banks could pass some of those lower costs to customers in the form of higher interest rates.

But how much better can rates really get? After all, this little thing called the Internet already has done a lot to make banking rates more transparent and competitive.

Interstate banking over the Web means consumers are no longer limited to the savings accounts offered by their local branches. And sites like Bankrate list savings rates available at hundreds of banks. Some of those banks pay to advertise on Bankrate, but the site hunts down some rates on its own, too.

As a result, it's pretty clear to consumers where the best deals are. That alone should already be pressuring banks to come up with competitive rates if they really want depositors' money.

So after MoneyAisle debuted in early June, I checked it out. I asked its auction engine to have banks offer me rates on certificates of deposit with varying time periods and investment amounts. Then in each instance, I compared the rate I was offered to what I would have found by poking around on Bankrate.

MoneyAisle usually came up short.

In 22 head-to-head tests, the rounds of bidding among banks on MoneyAisle revealed a better rate than Bankrate just four times. Twice, MoneyAisle and Bankrate tied, showing the same top rate.

But most of the time, the top rate available through MoneyAisle would have ranked anywhere from second to sixth among CDs of the same duration listed on Bankrate.

That's potentially costly. For example, when I told MoneyAisle I wanted to invest $25,000 in a five-year CD, the best offer was an annual percentage yield of 4.35 percent. Bankrate showed an institution offering 4.96 percent. That CD would be worth about $900 more after five years, assuming compounded interest.

However, it's telling that MoneyAisle managed to tie or win even a few of my head-to-head tests. In fact, sometimes the top rate revealed by MoneyAisle was better than what the winning bank was advertising on its own Web site.

This means the service has promise. For now fewer than 100 banks participate in any given auction. As more join the system (a low-risk proposition for the banks, since they pay MoneyAisle only when a customer accepts their offer) MoneyAisle just might squeeze a few more percentage points for consumers.

In the meantime, there's no downside in trying MoneyAisle. You don't have to commit to investing anything before you see the results of an auction.

Not only is the best rate revealed, but so is the institution offering it. It's likely you've never heard of the bank that wins your auction, but all accounts opened with MoneyAisle's participating institutions are federally insured up to $100,000.

These factors make these auctions stress-free, unlike the gamble you take on Priceline.com, another site where companies essentially are competing with each other to win your business. There, you don't always know in advance which airline or hotel you could wind up with.

Of course, a well-designed Web site will take MoneyAisle only so far. Show me the money.

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