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Bank Gives Free Mercedes Benz For $1 Million Deposit

C1 Bank is offering a free Mercedes-Benz to customers depositing $1 million into a unique five year CD the bank is promoting. Qualifying customers will receive their brand new Mercedes-Benz as pre-paid interest.

Customers can choose from the SLK350 Roadster (shown above), E350 Sedan, ML350 SUV and E350 Convertible. Each model has a base sticker price around $55,000.

The unique CD offers a 1.20% APY, yielding pre-calculated interest that would amount to a $61,294 advance payment. C1 Bank is only allowing the prepaid interest to be used towards a purchase of a new Mercedes with an MSRP of $59,585. They are throwing in all the taxes and license fees (worth nearly $5K), and knocking $3K off the package, so it basically works out.

The Fine Print:

  • Offer valid through July 31, 2012.
  • Only applicable for new funds.
  • Consumer deposits only.
  • Florida residents only.
  • Offer is limited to two Mercedes vehicles per household.
  • In the event of early withdrawal, C1 Bank will deduct $61,294.04 and a $3,000 penalty from the $1 million principal.
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It’s a pretty deft deal, all the way around. The dealer can move expensive cars with wholesale volume, so they can afford to give the bank discounts. Because of the dealer discount, the bank can afford to offer customers an effective APY greater than what they normally could (perhaps the difference between 0.75% and 1.20%). Right now, C1 has nearly everyone beat by at least 0.15% APY on a 5-year CD. And the CD customer benefits by receiving all their higher interest rate paid up front — a free car — instead of having to earn it slowly over time.

Key Questions: Why does C1 Bank want deposits? What will they do if they get 20 takers… and $20 million in deposits? Are they investing in T-bills? Do they need money to lend?

It’s a radical concept; probably not the first in the financial industry, but it turns the CD value proposition on its head. It’s like loaning someone $1 million dollars, except instead of the guy paying you back with interest five years from now, he’s giving you his brand new Benz up front today. It raises interesting questions about the time-value of money, interest rates vs. inflation rates, and the depreciating value of physical assets such as cars.

Of the CD promotion, C1 Bank CEO Trevor Burgess says it is “thrilling to change the game with the instant gratification.”

He sure hit a nerve there. That’s what makes this CD product so revolutionary: the concept of instant gratification. No one likes waiting for their money to accrue interest. It’s boring and “responsible,” so no one likes doing it.

The instant gratification CD is a good idea for financial marketers to tuck away. Save it for when your bank or credit union needs deposits, because that day will come again (as unlikely as that may seem sitting here in 2012). This could be a particularly deadly approach to take with the next generation of CD investors — Gen-Y, also known as Gen Now.

Just remember: The pricing on this kind of CD doesn’t wash out if you offer people prepaid interest in the form of cash. It only works out when you are able to offer a commodity or service you obtain at a wholesale discount. To make the offer as appealing as possible, using highly desirable items (e.g., luxury goods and destinations) is a smart strategy. Entice consumers with something they desperately crave and would value/covet, but would not usually buy for themselves.

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The Icing on the Cake

What makes C1’s Mercedes giveaway extra savvy is that is was timed to perfectly coincide with a name change. They previously bore the rather bland and undifferentiated “Community Bank” as their moniker, switching to the much more unique alphanumeric C1 effective May 1, 2012.

While news outlets would barely give notice to a bank changing names (it happens all the time, right?), the media will descend on a story about a free Mercedes with mad furor. The bank could have pumped out one press release after another… one customer letter after another… and still they wouldn’t have yielded a fraction of the communications value that their cleverly crafted CD promo will yield.

It’s brilliant. In fact, any bank or credit union that needs to draw attention to itself should consider using a similar promotional gimmick. Many announcements from financial institutions can be excruciatingly dull, but you can really spice up a PR story with a giveaway (preferably tied to a product promotion) dangling some blingy pizzazz.

As part of the new direction for the brand, C1 will be using the slogan “Customers 1st. Community 1st.” The tagline pays homage to the bank’s old “Community” name and focus, while also providing context for the “C” and “1” in the new name. It’s another smooth move on the bank’s part — honoring the old while explaining the new — but it begs a question: Where do shareholders fit in? Aren’t they also 1st? (Maybe C1 is privately held, so it doesn’t matter?)

C1 Bank is a local, independent bank serving 18 locations in Pinellas, Hillsborough, Manatee, Charlotte and Pasco counties in Florida.

Earlier this year, the bank announced net income of $1.0 million in the first quarter of 2012, its eighth consecutive quarterly profit.   Deposits grew organically by $94 million in the quarter from $558 million at year-end 2011 to $652 million at March 30, 2012.


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Comments

  1. This is a great idea, and surely there are a few millionaires out there who will take him up on the offer.

  2. The Financial Marketer says:

    Very cool and outside the box offer that’s for sure.

    As far as the investment goes.. well consider what that benz is worth as soon as it leaves the dealer lot much less after 5 years. ($20-$25K) If i had a $1M cash i’d rather just splurge and buy a used one.

    Can’t knock them for creating a very exciting incentive though.

  3. That’s one of those interesting time-value of money questions — the depreciating value of the car the instant you drive it off the lot vs. waiting for money five years down the road. It can get really complicated when you start factoring inflation predictions. The bank has to wrestle with cost-of-funds, inflation and other variables as well.

  4. Mark I says:

    Clever idea, but what about the upfront tax hit? The value of the vehicle should show on a 1099-Int which get reported as taxable income so customer will need to pay taxes out of cash outside CD. Even at 25% tax bracket, the fed tax bill will be approx $15k.

  5. Wouldn’t taxes be owed on the 1.2% APY earned either way, whether the interest is paid upfront, in installments over time, or in one lump sum at the end?

    The deal is obviously a good idea from the financial institution’s point of view. But the consumer? Maybe, maybe not. If someone has a million cash laying around who wants a new Benz for $15K, this is probably a fantastic offer. Even if it isn’t, who’s going to feel bad for a millionaire if they make one silly/frivolous investment here or there? As long as the customer isn’t investing their only million in the CD, they’ll probably find a way to manage through it. ;)

  6. Your are not getting a car for $15k, you’re getting a car in lieu of interest you’d get in a vanilla CD and the $15k is the tax bill, which would happen whether you get paid lump sum in cash or in this case a car. The bank would need to make it VERY clear to the customer that they will get a 1099-INT next January with the value of car reported to IRS as taxable interest income. People do care about having to pay tax on income they didn’t receive in cash.

    This offer is certainly a conversation starter and so from this standpoint is quite successful but I will be shocked to see if even a handful of takers materialize. The 7-figure CD investor and the new Mercedes owner profile has a lot less overlap than one might think.

    The best target for this offer: someone already considering to buy this car who has financial capacity/liquidity to commit $1MM into this CD for 5 years, not some random 7-figure CD investor who’s going think getting a car instead of cash over time is cool.

  7. I think the promo was mostly a PR play. I don’t think they’ll mind if they don’t get any takers on the offer. If someone does bite, you’re probably right: they will likely be UHNW types who were already in the market for a Benz.

    From C1’s disclosure for the CD:

    “Pre-calculated interest earned and paid in advance on the CD may be subject to applicable State or Federal taxes. C1 Bank will issue a same year (2012) 1099-INT Interest Statement for pre-calculated interest earned. Client should consult and discuss any taxation issues with a tax advisor.”

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