Merrill Challenges Banks With Account

Merrill Lynch & Co. said Tuesday that it will offer a federally insured savings account to many of its brokerage customers, challenging banks and thrifts for some of their $4.1 trillion in savings deposits.

The new service gives the world’s biggest brokerage, which offers traditional and Internet accounts, mutual funds and trust services, another way to lure investors’ money. It could also provide a cheap source of funds to lend.

“It’s one more reason to keep your money at Merrill,” though it’s not likely by itself to draw a flood of new clients, said Steve Galbraith, a Sanford C. Bernstein & Co. analyst. Investors’ aversion to risk has declined amid the bull market of the 1990s, analysts say.

Adding federally insured accounts underlines Merrill’s effort to offer more products as the line between banks, brokers and fund managers blurs. Its rivals now comprise discount brokers such as E-Trade Group Inc., traditional rivals like Morgan Stanley Dean Witter & Co., mutual fund companies such as Fidelity Investments and financial supermarkets like Citigroup.

The service will be offered to customers with “cash management accounts,” which require $20,000 to open. Last year Merrill introduced two accounts that offer online trading, its counteroffensive to Web brokers who were stealing away its clients.

It won’t necessarily be easy to draw money from banks.

“Consumers have a level of comfort with banks,” said Jack Gillis, director of public affairs at the Washington-based Consumer Federation of America. Merrill and other financial companies “will have to go a long way to get there.”

Merrill’s accounts would pay about 5.4% interest, compared with rates of about 2% banks pay for savings accounts, said John Steffens, the company’s retail brokerage chief.

Merrill shares fell $1 to $85.75 on the NYSE.