WESTLAKE VILLAGE, Calif., June 24, 2010—According to the J.D. Power and Associates 2010 U.S. Retail Bank New Account Study(SM) released today, 7 out of 10 prospective customers who shop a large national bank will open an account at that bank.

Customers considering a regional bank, however, are likely to choose that bank only 59% of the time. 

Why do the large nationals attract a higher percentage of prospective customers?  The study found that the large nationals are more likely to use promotional gifts and attractive short-term interest rates.

Among customers who opened up a new account with a large national bank, 24% said that their primary reason for selecting that bank was because of a promotional gift, cash award or an attractive short-term interest rate, compared with just 13% of regional bank customers.

Gifts and incentive rates may not, however, buy loyalty. For the survey respondents who cited a gift or a promotional rate as their primary reason for selecting the bank 24% stated that they “definitely will” or “probably will” switch banks again in the next 12 months.  For those who cited another reason (such as branch proximity or a positive recommendation) for selecting the institution only 13% said they expected to switch banks again in the coming year.

“While offering a promotional gift, cash award or an attractive short-term interest rate may lead to increased selection by customers, it’s important to keep in mind that the increased selection rate doesn’t necessarily lead to an increased retention rate,” said Michael Beird, director of the banking practice at J.D. Power and Associates. “The short-term boost in acquiring customers can become a retention challenge in the long run.”

The J.D. Power study considered the bank shopping and selection process for customers, as well as customer satisfaction with the bank’s account initiation and on-boarding processes.

While the large national banks may open the higher proportion of accounts among shoppers that come to the bank, many prospective customers simply do not consider the national brands altogether.  Large national banks experience a higher avoidance rate among potential customers than regional banks (11% vs. 7%), partially as a result of unfavorable reputations and perceived financial instability.

Among customers who completely avoid a particular financial institution in their shopping process, brand image is the leading driver. Poor service experiences and bank policies, particularly those related to high rates and fees, are also main reasons for avoidance of both large national and regional banks.

“The recent turmoil in the banking sector has had a major impact on brand image, particularly among the larger banks,” said Beird. “As a result, it’s important that banks provide top-notch service to help to lessen these effects and provide a boost to their brand image.”

The 2010 Retail Bank New Account Study was based on responses from 3,770 consumers who shopped for a new banking account or new primary financial institution during the past 12 months.  The study was fielded in March and April 2010, and includes five large national banks (Bank of America, Chase, Citibank, Wachovia and Wells Fargo) and 16 regional banks (Branch Banking & Trust, Capital One, Citizens Bank, Comerica Bank, Fifth Third Bank, HSBC, KeyBank, M&T Bank, National City, PNC Bank, Regions Bank, Sovereign Bank, SunTrust Bank, TD Bank, U.S. Bank and Union Bank).

J.D. Power and Associates offers ratings of banks by geographic region,available at www.jdpower.com/finance.