“For New Money Only”: Banks Fight for Deposits, But if You Don’t Jump Through Hoops, You Get “Punishment Rates”

HSBC makes it official.

The HSBC branch on Montgomery Street in San Francisco caught my attention this weekend with a poster. It showed a large red “2.01%” and the phrase, “Business Elite Savings Account.” An interest rate of 2.01% on a savings account at a large bank is the highest I’ve seen in over decade. And this was for a savings account for businesses. In my experience, interest rates for business savings accounts are even lower than interest rates on personal savings accounts:

A closer look through the reflections and smudges in the window – too many noses pressed against it to read the small print? – revealed “For New Money Only.

A check of HSBC’s website confirmed it was indeed offering 2.01% for these business savings accounts, “For New Money only.” It was for a “limited-time offer” – so hurry up, or miss out on it forever. In other words, HSBC might be worried that it will have to offer an even higher interest rate later this year, when other banks are offering 2% on savings accounts.

And there was a footnote: “New Money is defined as deposits and investments not previously held by any member of the HSBC Group in the U.S.”

This is the first time I’ve seen a big bank explicitly say that its special rate is “for new money only,” and that the current money you have at that bank will continue to suffer through what I now call “punishment rates” of near-zero.

This is just one more step in the battle for deposits where banks are fighting every which way they can to attract new deposits – the “new money” – while keeping their overall funding costs low.

It’s working for them. There are $9.2 trillion in savings deposits at all banks and credit unions in the US. The national average rate these venerable institutions paid their customers (as of May 21) on 12-month CDs of $100,000 or less was 0.37%; and the national rate on savings accounts, which has been stuck ignominiously at 0.06% for years, just now ticked up to a still ignominiously low 0.07%.

This means that at this average rate of 0.07%, for every $1,000 in a savings account, these institutions pay their customers on average about 70 cents a year in interest — still, even after the rates on Treasuries and other securities have surged.

By contrast, the interest from HSBC’s “new money only” savings account would amount to about $20.10 a year for each $1,000 on deposit. This is still ludicrously low, but it’s nearly 30 times higher than the national average of 70 cents.

American Express Bank offers 1.60% on its savings account – new money and old money – up from 1.50% a few weeks ago. Goldman Sachs’s Marcus Bank has nudged its rate on savings accounts up to 1.70%. On Bankrate.com, the highest rate on savings accounts today is offered by CIT, 1.85%. But HSBC’s 2.01% “for new money only” deal is not on the list.

In terms of “brokered CDs,” rates continue to tick up. At my broker, banks compete fiercely for deposits. Wells Fargo has recently hiked its rate on a 13-months CD to 2.35%, more than any other bank on my broker’s CD list. This is higher than the one-year Treasury yield of 2.27% at the close on Friday. A slew of banks below it are offering 2.25% or similar CDs.

Wells Fargo’s CD offers also rank at the op in two-year CDs, offering 2.80%, along with Morgan Stanley, and just a notch above other banks offering 2.75%. All are higher than the two-year Treasury yield of 2.48%.

Wells Fargo, Citibank, Morgan Stanley, and others are offering 3.10% for 3-year CDs. This rate is quite a bit higher than the 3-year Treasury yield of 2.60% at the close on Friday! In fact, this 3-year CD rate is higher than the 20-year Treasury yield of 3.01%.

Let this sink in for a moment.

All of these CDs are FDIC insured, thus ultimately backed by the US Treasury. In terms of credit risk, they’re in a similar category as Treasury securities.

But on the websites of Wells Fargo, Citibank, and others, the banks are still sticking to their near-zero percent punishment rates for existing money. “Punishment rates” because you get punished for leaving your money in those banks.

At banks like Citibank and Wells Fargo, there isn’t even any distinction between “new money” and old money. No one currently doing business at Wells Fargo gets competitive rates on savings accounts or CDs, even on new money they bring in. All they get is punishment rates.

To get the high rates from Wells Fargo, Citibank, or other banks, you would need to withdraw your funds from that bank and deposit them in your brokerage account and then buy their CDs with those funds.

So in their battle for deposits that kicked off sometime last year, banks are following one of three strategies:

  1. Banks like Wells Fargo, Citibank, and similar: even if a current customer brings in “new money,” that new money will still only get punishment rates. But they offer top rates on “brokered CDs.”
  2. Banks, such as Goldman Sachs’ Marcus or American Express bank, pay the higher rates automatically to all existing and new customers.
  3. And now there’s HSBC, explicitly stating that “new money only” will get the higher rates, and all its current customers can get those rates on money they might transfer to the bank, which leaves those customers with two accounts and two different rates.

The use of punishment rates was part of the Fed’s well-communicated strategy to recapitalize the banks after the Financial Crisis by maximizing their profits on the backs of savers. But now, a new wind is blowing. The Fed is stepping out of the way. And banks are trying to figure out how to deal with it. They want the deposits – that’s for sure. But savers will need to jump through some hoops, or else they will continue to get punishment rates.

Banks are using other strategies to attract deposits and keep funding costs down. Read…  “Act Now and Lock in” these Deposit Rates: Banking Cat-Fight Breaks Out Like We Haven’t Seen in Over 10 Years 
 

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  60 comments for ““For New Money Only”: Banks Fight for Deposits, But if You Don’t Jump Through Hoops, You Get “Punishment Rates”

  1. MCH
    May 28, 2018 at 8:45 pm

    Doesn’t this essentially encourage people to shop banks? Not that I mind, thanks to your comments, I started going off for brokered CDs. I also opened up a new account at first republic, the next thing I’m gonna do is to threaten my deposits at Wells to see if I can get better rates.

    I know it sounds petty, but then so are the banks.

    • raxadian
      May 29, 2018 at 7:18 am

      Yes.

      Banks seem to have forgot that changing banks today can be even done fully electronicaly.

      Basically they will lose all their tech savy customers and only keep people over 50 or 60 that just isn’t familiar with stuff like that.

      • Anon1970
        May 29, 2018 at 9:01 am

        It’s not quite that easy if you have a direct deposit with the bank. But it can be done.

        • RepubAnon
          May 29, 2018 at 10:47 am

          One can do the bank shuffle: get minimum dollar accounts at two or three banks, use interbank transfers to move one’s investment savings around.

      • Prairies
        May 29, 2018 at 9:40 am

        Even people above 50 will change banks, I know many local farmers nearing retirement that have changed bank branches long before the tech days. It isn’t as hard as you think, it is just tedious and you pretty much have to be ready to stand your ground even when looking someone in the eye. Something the young generation has a hard time doing, spineless bunch of sheeple. It is your money in the bank, the bank has no right to claim you can’t have your own money.

  2. Tony of CA
    May 28, 2018 at 8:47 pm

    I believe rates will be heading south again. EU is looking awfully wobbly again.

    • MC01
      May 29, 2018 at 1:50 am

      Yet I am receiving similar offers from Italian banks as well.
      Intriguingly enough these offers aren’t advertised on the banks’ websites: you get them either in the mail or when you are physically in the bank. If it’s a bank you are already working with and which has an idea of your financial situation, they may even phone you or send you an internal communication through their home banking system.

      My idea is banks are trying to lock in larger than average (€75,000 and over) depositors at attractive rates right now because they will have to offer higher rates in six months, especially given the pathetic performances of the “investment” funds these banks peddle to customers lately.

    • d
      May 29, 2018 at 7:05 am

      Will flutter down untill end August or later now. As it just italy going to elections again. For now.

  3. Scott
    May 28, 2018 at 8:51 pm

    I had never heard of a brokered CD until I read about them here a few weeks ago. I’ve done some research on them and think I have at least a basic understanding of what they are. However, I still have one question: what is the difference between buying a 12-month brokered CD from Wells Fargo (for example) compared to building a bond from the same bank with the same duration? Is it that the CD is FDIC insured or is there something more?

    • May 29, 2018 at 8:04 am

      from: https://www.fdic.gov/consumers/consumer/news/cnspr13/cdsfrombrokers.html

      “Make sure all of your deposit will be fully insured. To protect your brokered CD from loss if the bank fails, follow these steps to confirm that your money is placed in a properly titled deposit account at an FDIC-insured bank and that all of it is within the deposit insurance limits. First, get the name of the bank where your money is to be deposited and verify that it is FDIC-insured by calling the FDIC toll-free at 1-877-275-3342 or searching BankFind, the FDIC’s database of insured institutions at http://research.fdic.gov/bankfind.

      Second, ask your broker to confirm that the deposit account records for its brokered CDs reflect the broker’s role as an agent for its clients (for instance, by titling the account “XYZ Brokerage, as Custodian for Clients”). That way, each client who owns the CD can qualify for up to at least $250,000 in deposit insurance. This coverage is generally referred to as “pass-through” insurance because it bypasses the broker and is calculated based on the ownership interests of the individual depositors.

      Also with pass-through insurance, a consumer’s brokered deposits are added to any traditional deposits he or she has at the same bank for purposes of calculating coverage. So, if your combined brokered and traditional deposits at a single bank exceed $250,000, you should call the FDIC to discuss your coverage.”

  4. Sporkfed
    May 28, 2018 at 9:00 pm

    At what point do the higher US rates begin to attract European savers ?

  5. Mitch
    May 28, 2018 at 9:02 pm

    I think you are too excited about this. This is a savings account…not a term deposit. The rate is a promotional rate for a stated finite period of time, at which point the rate reverts back to its normal, and likely poor rate. So anyone who jumps now will receive the benefit for the longest period, but its a very finite period. The bank benefits by 1) offering the incentive of an inflated rate to the customer in lieu of the costs of paying fees for brokered deposits and 2) expects that many of those deposits will not immediately flee when the rate reverts back to normal. You and I might flee on day 1 of the rate reversion, but many people will forget/or not notice the change.

    • May 29, 2018 at 12:21 am

      Yes, HSBC’s deal is certainly a promo. That’s why it is advertised. But the key is ====> “For New Money Only.” That’s what this is all about: How to attract new deposits without having to pay more for current deposits, and that depositors need to start moving money around to benefit from the higher rates that are available in different places.

      • Valuationguy
        May 29, 2018 at 10:23 am

        Its also a telegraph of HSBC’s internal view that betting on the U.S. bonds+US $ exchange is going to return more than 2% annually….with a heavy emphasis on the exchange rate.

        The mainstream thought that the US$ is already too high is….as usual…wrong. The major banks are positioning to take advantage…while feeding the media stories that the euro and pound are great and should recover.

        • Nicko2
          May 29, 2018 at 11:07 am

          I like your thinking. EM currencies are sure looking …wobbly. King Dollar!

  6. timbers
    May 28, 2018 at 9:20 pm

    My current favorite is Synchrony Bank at 2.25% for 1 year…and they will offer you a credit card that pays 2% back on everything you purchase (up from my previous 1%)…now if only Synchrony would offer “off-shore” CD’s so I would didn’t have to pay taxes like Obamanation’s, Hillary’s, and Trump’s Ultra Rich Friends and Rich Gigantic Corporations that donate to them and pay for their Ultra Rich LifeStyles.

  7. Setarcos
    May 28, 2018 at 9:36 pm

    Thinking complacency as well as punishment. Switching an account takes only a few moments nowadays. Shame on the banks – sure. Shame on me for not noticing – absolutely. Thanks for reminding everyone there are better options available.

  8. Bill
    May 28, 2018 at 9:43 pm

    Why are the banks competing for or even seeking deposits? My understanding was that the banks were hoarding trillions of dollars and not lending much of it (“There are $9.2 trillion in savings deposits at all banks and credit unions in the US”). Is the government paying the banks higher interest (interest higher than what the banks pay to depositors) to hold these deposit funds?

    • May 29, 2018 at 12:23 am

      Currently the Fed pays the banks 1.75% on required and excess reserves.

      • Prairies
        May 29, 2018 at 9:45 am

        I was under the impression the banks can only borrow based on the size of the savings they have collected. So the bigger the pool of people filling the savings accounts the bigger the loans they can get out of the fed or government or where ever they get their funds from.

        I am still unable to see behind the curtain and it annoys me greatly.

        • May 29, 2018 at 1:00 pm

          You’re not the only one :-]

  9. californiawoman
    May 28, 2018 at 9:46 pm

    Am I missing something? Why wouldn’t someone just buy treasuries directly from http://www.treasurydirect.gov ?

    • Tyler
      May 29, 2018 at 12:15 am

      For me it is their dis-functional 1970’s website that scares me off. I kicked the wheels with it, purchased a small amount of t-bills. I just didn’t feel comfortable with it. If something went wrong, I would not have much faith in some government worker resolving it in a timely matter. If I want treasuries, I feel much more comfortable purchasing them threw Vanguard.

      • James Mitchell
        May 29, 2018 at 4:48 pm

        In small print they refer you to their out-sourced customer service firm, Stoopid and Sneeky of Frostbite Falls. I think their local manager smeared the window to make the offer unreadable. Our only defense against them is to not do business with them.

    • May 29, 2018 at 12:30 am

      YES, you’ve missed a HUGE point! These CD rates are quite a bit HIGHER than Treasury yields of similar maturities.

      For example, the 3-year CDs that I listed pay 3.1%. That’s more than the 10-year or even 30-year Treasury yield (3.01%)! You may want to check the section in the article about this. Right now, if you’re buying Treasuries, you’re leaving quite a bit of money on the table

    • Joe
      May 29, 2018 at 12:40 pm

      That’s what I’m doing, buying 4 week TBills that automatically roll over every 4 weeks. My funds are split into 4 groups so that I could get all my $ back in about 4 weeks, and 1/4 within around 1 week. Everything runs automatically, and every week I receive an interest payment that credits my checking account.

      I don’t want to tie up my funds for years to eke out a few extra dollars.

  10. Arnold Ziffel
    May 28, 2018 at 10:37 pm

    Why bother with banks when you can take your surplus cash and invest in 4 week treasury bonds at 1.68% through Treasury Direct. Yearly compounding is close to 2%. Also avoid Req Q penalty for early withdrawal if you need your money. I have lattered my purchases so that I don’t have to wait a month if I need to pay bills.

    https://www.treasurydirect.gov/tdhome.htm

    • May 29, 2018 at 12:36 am

      1. These CD rates listed in the article are quite a bit HIGHER than Treasury yields of similar maturities. So if you don’t want the extra money, fine.

      2. This was about banks and what’s going on with banks and how they’re dealing with funding costs and deposits. This wasn’t about the government and its funding needs and costs.

      • Lee
        May 29, 2018 at 2:44 am

        Income from T-Bills/Bonds is exempt from state and local taxation.

        The income from a brokered CD is not.

        The difference in rates may be negligible or even higher for T Bills/bonds depending on the individual’s state of residence and income levels as a result of the tax exemption.

        For a person in California or NY with their high tax rates the difference could be substantial. For a person in Texas with no state income tax the difference is meaningless.

        • May 29, 2018 at 7:52 am

          Yes, that is certainly a consideration in some states. But even in California, where state income tax is about 10%, income from 2-year CDs and longer after taxes would still be higher than un-taxed income from Treasuries with equivalent maturities. That’s how far these bank rates have jumped!

          But the point is: all this bank competition for deposits is new. We haven’t seen this in over 10 years of “financial repression.” And this is a massive change impacting an increasing share of $9 trillion in deposits.

          I’m not saying people should get CDs over other investments. That’s their personal decision. But if they have money in the bank, and if they’re going to keep it there, they may want to shop for the best rates because there are NOW huge differences.

    • HowNow
      May 29, 2018 at 8:41 am

      At Schwab, Fidelity and most brokerages, you can buy CDs from any number of banks at rates competitive with HSBC. They’re FDIC insured and are being offered by the banks, not the brokerage itself. The maturities differ, as do the rates, from bank to bank. I think (but am not certain) that the fees for the brokerage are embedded in the rate and there’s no additional transaction fee for the brokerage. The thing is… if you don’t hold them to maturity, you lose a bit on penalties when selling too early.

  11. Jon
    May 28, 2018 at 11:07 pm

    My accounts are with Chase and had bunch of money parked out of sheer laziness
    Coupling weeks back opened up amex savings giving 1.55 apy…
    It takes few mins and takes few clicks to move money around

  12. Debt Free
    May 28, 2018 at 11:50 pm

    I wonder how many banks are using data “science” to figure out how to best screw over their customers on deposit rates. For my part to fight this, I recently closed a 0.07% passbook account and put it in a brokered CD ladder at Fidelity. For some reason Wells Fargo sells 13 month CDs when the others are all 12; maybe that is their strategy to offer a slightly higher rate on lists the brokerages publish and vacuum up deposits.

    • fajensen
      May 29, 2018 at 12:37 am

      When I was working in telecoms, they had mathematicians and statisticians working on the pricing structures. Those flat-rate contracts are restructured into high-yield bonds, that takes some understanding of maths and statistics to pull off. At least in the beginning until design tools are made.

      I trained a couple of them in programming back in the naughties, at least one of them became a wizard – she is probably cooking up all manners of algorithmic mischief :).

      So, yes, everyone does it.

  13. alex in san jose AKA digital Detroit
    May 29, 2018 at 12:04 am

    “New money only” – LOL that’s hilarious. I’m sure most here will have seen/heard the phrase “new money” used to describe people who’ve only come into wealth in a generation or so, or even in their own lifetimes.

    A guy in an expensive, but ill-fitting suit at a dinner asks one of the waiters if they have any ketchup for his (well done) steak. The upper-class people around him react with horror – very well hidden, of course, they are upper-class after all. One whispers to another, “That’s to be expected, he’s ‘new money'”.

  14. fajensen
    May 29, 2018 at 12:26 am

    ”New Money Only” – does that mean that laundered money is no longer good at this fine, upstanding, establishment that HSBC is?

    • roger lagerfeldt
      May 29, 2018 at 1:54 am

      Yes HSBC has been the druglords bank when they clean drugmoney to real money for a long time. And nobody in the bank got jail. The bank did not need to sell drugs to make money,,,they let others do the dirty work to sell.. But the little man on the street tried to sell a very little got jail.

      • sierra7
        May 29, 2018 at 11:17 am

        We need to be reminded of the ugly side of this (and many others) bank………I keep saying we live within a “criminal enterprise system” where the victims are written off as just so much chaff and the “owners” sail on with their yachts.
        Thx for another informative money article.

  15. KaboomRick
    May 29, 2018 at 12:53 am

    fyi Chinese Banks in HK are offering up to 2.7% on USD pm 1 year time deposits.
    I am also told that Private Swiss Banks in HK are offering 3month Time Deposits on USD at 2.7%, which is 40bps above 3M LIBOR.
    HSBC in HK meanwhile don’t give any interest to their HKD customers so it is really crazy that they are offering 2.01% in the US.

  16. roger lagerfeldt
    May 29, 2018 at 1:50 am

    cannot understand why people do not buy/keep gold/silvercoins instead of USD in bankaccounts…

    • Peter
      May 29, 2018 at 2:25 am

      Because there are lazy millennials?

  17. Lee
    May 29, 2018 at 2:57 am

    “New Money” the same scam you hear in different sectors when it comes to ‘new customers’.

    The banks here offer cheaper loans, but only for ‘new loans’. Yes, the difference in interest rates will make a difference in the loan payments, but the time and work involved along with the huge fees to change banks makes it less likely people will change. Even more so if they are planiing on selling the property within a few years.

    The utilities here pull the same scam – switch and get a bonus and huge ‘discounts’ off prices. But the price that the discount is based on is the ‘market rate’ and not the standing offer rate which means that you can actually end up paying more!!

    And the new ‘contracts’ are contracts only for the customer with the fine print stating that the utility can change prices at any time after 30 days on many of these ‘deals’

    Stock brokers pull the same stunt – open a new account and get so many free trades or a super discount rate. Been a customer for years and get nothing – keep paying the same old higher rates.

    • Sporkfed
      May 29, 2018 at 6:05 am

      Absolutely correct. The only way to come out ahead is
      to reduce your exposure to transaction costs . Paying
      down debt for most people is still the best option.

  18. Gershon
    May 29, 2018 at 6:27 am

    HSBC was caught launder billions for the Sinaloa drug cartel. Of course they got the usual slap-on-the-wrist fines, equivalent to a fraction of their ill-gotten profits from laundering the drug money, and no criminal charges against anyone at the bank, per usual.

    Our banking system is as addicted to the liquidity from the drug trade as our wasted youth are addicted to south-of-the-border narcotics.

    But I’m sure Jeff Sessions will get right on that.

  19. mark
    May 29, 2018 at 6:53 am

    Banks screw people because they’re above the law. Eric Holder was a “corporate doormat” for the banks and corporations- he would lay down at the door of his Attorney General office and let them wipe their feet on his back as they left.

    No arrests, no convictions in 8 years. Yes They Can. Above the law

  20. Gorbachev
    May 29, 2018 at 9:21 am

    A bank manager in a small branch in a poor part of town who had lent

    me a considerable amount of money in a difficult part of my life,

    informed me he had over 10 million in accounts that the bank paid no

    interest on.At that time they made enough on that money to pay all

    salaries at that branch.That branch today is still in business.

  21. Mean Chicken
    May 29, 2018 at 10:15 am

    Also consider, the FED pays banks IOER (interest on excess reserves) ( ie: pays them not to lend)

  22. HGL
    May 29, 2018 at 10:37 am

    Where are these 3% rates? I just looked and they are not advertising them shittybank and wells both advertise 1.5% cds on the sites.

    • May 29, 2018 at 12:57 pm

      Did you check the CDs they offer through your broker? Those rates in the article are “brokered CDs.” Wells on its site only offers punishment rates. You have to go through your broker to get them.

  23. Ambrose Bierce
    May 29, 2018 at 11:02 am

    Savers are obsessing about small differences in rates. These rate teasers are like free toasters that thrifts used to give to new accounts. The milieu looks more everyday like the 1970s, including DJT for RMN. Interest rate manipulation is the ultimate in ‘price controls’ which Nixon used, and which destroyed the American farm in the great depression. You could say the bid is in under housing, and the question will be, where are the bidders? In the 70s inflation led rates, this time higher rates will be unable to leverage up inflation.

  24. raxadian
    May 29, 2018 at 11:16 am

    Guys don’t put your money on Italian, Spanish or Mexican banks, haven’t you read the relevant articles on this same site?

    • Prairies
      May 29, 2018 at 12:30 pm

      No one is suggesting putting money in those banks, just pondering why the banks in “stable” economies are grasping at savers while interests rates inch up at a snail’s pace. Could this new trend be the canary in the coal mine? All financial markets seem to be tied together in some way, some just deeper than others.

  25. Chris H
    May 29, 2018 at 4:01 pm

    Barclay’s sent me an email over the weekend saying they were bumping my 1.5% account up to 1.6%. I didn’t even have to ask for it.

  26. May 30, 2018 at 1:33 am

    Good piece, thank you. Only one sticking point with this line: “The Fed is stepping out of the way. And banks are trying to figure out how to deal with it. ”

    CORRECTION: When you’re talking about the Fed and the banks, you’re talking about the same thing. The Fed is not run by the Feds, as its name would portend. It’s a private organization of banks/ers that operate outside the purview of the American people.

    • May 30, 2018 at 7:23 am

      The Fed IS stepping out of the way and is allowing or making banks to compete for deposits, which is what this is about. For ten years, it ran the banking industry like a cartel, essentially prohibiting competition for deposits to recapitalize the banks at the expense of the savers. This was an essential part of its implementation of ZIRP. Now ZIRP is over, the banks are recapitalized, and the Fed is raising rates and allowing this competition to take place. That’s why I’m writing these articles — because this is such a massive change.

  27. R Davis
    May 30, 2018 at 3:53 am

    Isn’t it therefore, to the advantage of business not to have a savings account.
    But to be in debt.
    Isn’t debt an advantage to tax avoidance.
    What were saving monies, could be invested in other goods & ventures realising profit.
    The only problem here, is that diversification is a skilled art form, a gift that most mortals are not blessed with.
    And businesses collect trash instead of treasure.
    There is a sucher born every minute – hey.

    • May 30, 2018 at 7:49 am

      As a business, if you have debt and no cash, you’re on a tightrope every day. And one day, you’ll fall off. That’s how you lose your business. You can have debt, but you also need to have cash.

  28. HKBoy
    Jun 6, 2018 at 1:12 am

    Hang Seng Bank a subsidary of HSBC in HK is offering 6 month time deposits to its best customers on USD @ 3.2% and HKD 3%.
    Equivalent LIBOR and HIBOR rates are much lower.

    Makes you think USD and HKD funding is problematic.

  29. WSKJ
    Jun 6, 2018 at 3:59 pm

    Just adding to the data bank:

    A credit union (NW U.S.) where I have an account, as of today, June 6, 2018, advertises:

    2.018 % on 10-month CDs, through month of June. Minimum $500.

    2.53 % on 48 to 60-month CDs (I didn’t note a minimum)

    Does not have to be new money.

Comments are closed.