It’s true that high-yield savings accounts offer interest multiples above what you can usually find from your typical state or national bank. For example, a “high performance” money market account (savings account) at Wachovia in my area earns a maximum of 0.8% APY — and that’s only on balances above $250,000. The APY on the first $5,000 deposited is only 0.04%. High performance?
In comparison, ING Direct’s recent drop to 1.85% APY seems like a gift. Even this rate is dangerously low if you keep a large amount of money in savings. Over time, inflation will eat away the purchasing power of your money in savings, particularly when interest rates are low.
ING Direct’s Orange Savings Account isn’t the only “high-yield” account that has fallen lately. Look at this historical chart of interest rates. Everything in red has dropped since the last update. Even DollarSavingsDirect, which has been at the top of the chart since I added them in November 2008, is no longer the leader with a 3.05% APY.
GMAC’s Online Savings Account has dropped from 2.5% to 2.25% APY. HSBC Direct now matches GMAC, having fallen from 2.45% to 2.25% APY. E*TRADE Bank’s Complete Savings Account has recently fallen to 2.15% APY.
I am tempted to move more of my money around. A large portion of my cash is still held at ING Direct, one of the best banks for savings accounts. But I would like to earn more with my uninvested money. The problem is there is no way of predicting which banks will consistently offer the highest rates. Banks which hold the lead for a while, like HSBC Direct and OneUnited, eventually fall to more competitive rates. I expect DollarSavingsDirect, which has offered the highest rates recently, will eventually fall to the middle of the pack. Chasing the highest rate is a time-consuming, frustrating philosophy.
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{ 15 comments… read them below or add one }
yeah, that’s why i just don’t do it. not worth the time.
These lower rates tell me that banks are flush with cash right now. Besides, fed funds cost between 0 and 0.25%. Why should any bank pay its savers 3% then? These banks don’t need to attract any more cash. The only problem is that banks are sitting on their cash (and are not lending any) just like corporations and sensible individuals sit on their cash right now.
Look into your local credit unions. 4% interest with some easy caveats about using your debit card. I bailed on ING last summer.
Wachovia does have their Way2Save program which offers higher interest rates. The problem with it is it limits the deposits you can make, like $100 a month or something. No wonder when they started going down hill everyone jumped ship for other banks.
Dollar Savings Direct just dropped again to 3%
Cancel that… I was looking at their CD rate… DSD is still at 3.05%
WHA?!? ING dropped to 1.85?!? I’m not a rate chaser, however this is really giving me pause. As you said though, they are all on the way down, so what’s the point? It’s like trying to walk up a down escalator.
At this point with rates so low and dropping (1.85 at ING now?When I started investing there in 2000 it was 7%…ugh!) I may as well keep the money in my safe. I have never thought about seriously doing it before but its probably safer there anyway.
Duh, I didn’t mean investing I meant saving… Sorry!
Is there a way to predict when they will drop or when they will go back up again? Would you consider removing everything out? Or no benefit out of that?
Yes, it’s definitely a difficult task, trying to figure when and how interest rates will change. I’m saving with both ING and HSBC, and to see both of those rates decrease right in front of my eyes, on the same day, didn’t help make me any more optimistic about the economy.
If you are looking for a suggestion as to where you can put your savings, might I suggest SmartyPig? They offer fairly high interest rates (typically, about a full percent more than ING) and are fairly user-friendly. Just a thought.
Bank of America is about the same. I don’t think they want our money either with rates of .3% When I discussed the low rates with the manger she mentioned that I would lose some benefits if I moved our accounts. The only thing I would miss is free checks, of which would only cost about $20 a year.
These banks need to hurry up and start lending money out. I’m sick of these low rates.
I keep my “safe” money in I-bonds through Treasury Direct. A couple can squirrel away $10k per year this way. The only catch is you can’t access your money for a year, and if you access it in the period after one year but before five years, you forfeit 3 months of interest. But since I started it more than a year ago (3 years ago, actually), the first issue doesn’t matter to me, because already there is plenty of money I can access; and as for the second issue, losing 3 months of interest is better than many alternatives. Currently (until April 30, 2009) I-bonds pay about 5.6% and in the 6-month period that ended Oct. 30, 2008, they paid about 4.7%; what that means is that if you kept your money in there EXACTLY a year, in which 6 months was at 5.6% and 6 months was at 4.7%, then you’d earn around 5.1% times 3/4 (i.e., 9 months’ worth instead of 12), and that would still be around 3.8%. Where else can you currently beat that in something equally safe? And that relatively poor result is only if you do, indeed, actually need the money right away; every month you keep it beyond one year makes the penalty less and less meaningful, until finally after 5 years there is no penalty. Granted, future interest may be lower, but I’ll cross that bridge when I get to it.
If you buy I-bonds, do pay attention to the way interest is calculated, including both the “fixed” portion and the inflation-adjusted portion.
@Mike – I believe it is 10K per person per year: 5K through treasury direct and 5K through a local bank. I might be wrong, but check it out.
One problem I see with I bonds is that while they are great when a) there is inflation b) the interest rates and hence the rates paid on CDs are low, they aren’t as great during deflation or even low inflation. The rates you list are great, but most of these rates are based on time when there was inflation. Like 5.6% reflects high inflation last summer. I suspect that after the next rate reset the rates will be much much lower.
I hope that “fixed” portion will be higher in May; maybe because the inflation is almost non-existent now, but I don’t know how they figure out the fixed rate. The previous time I bought – 10K worth last March – the fixed rate was 1.2. Now I am holding off gambling on a higher fixed rate in May and, if not, higher rate in October.
I just buy them as a hedge against possible future inflation; I don’t think much about rate fluctuations in the meantime – sometimes they are better than CDs and sometimes worth.