At the end of 2008, the editors of Kiplinger’s Personal Finance magazine selected FNBO Direct as their favorite savings account. Since that time, the banking landscape has changed. From the ashes of GMAC Bank rose Ally Bank offering competitive interest rates, currently APY. Kiplinger’s chose Ally Bank as the best savings account of 2009.
You can read my review here.
Kiplinger’s editors list their favorite features Ally Bank Online Savings Account: no minimum deposit to open the account, no monthly fees, and no minimum balance. The magazine also mentions Ally’s no-penalty certificate of deposit (CD). With these strong products, Kiplinger’s rates Ally Bank at the top.
The magazine selects additional favorites. Their choice for best checking account is most notable. Schwab Bank High-Yield Investor Checking has taken this award for the second year in a row.
With savings and checking accounts offering low interest rates compared to the rates offered a few years ago, Kiplinger’s also presents two suggestions for bonds. These are a little riskier but will most likely present a better return for investors than savings accounts. The favorite candidates are Vanguard Limited Term Exempt and Fidelity Floating High Income.
Since GMAC Bank became Ally Bank last year, many readers have offered feedback about the result of the transformation, both positive and negative, about the full customer experience. Ally Bank customers, please share your thoughts here. Do you like the bank? Is Kiplinger’s choice justifiable?
In a few days you will have a chance to vote for your favorite bank and savings account by participating in the Plutus Awards.
Related: Best online savings accounts.
In a perfect word, I wouldn’t spread my money among more than one or two savings accounts. There is value in simplifying personal finances and I try to take that approach where possible. Forces are working against me, however, keeping my finances more complicated than they would be otherwise.
Occasionally I review and evaluate banking products for the benefit of Consumerism Commentary readers. For some examples, see my reviews of the Ally Bank Savings Account, FNBO Direct Savings Account, and EverBank Money Market Account. In order to evaluate these products I use my own money to open new accounts. This has left me with a long list of banks where I keep not much more than the minimum allowed balance.
Without Consumerism Commentary, I expect I’d leave most of my cash in a savings account that offers consistently high interest (not teaser rates) and exceptional customer service. Yesterday, a visitor asked me to explain where my cash is held, so I put together this chart, based on my account balances at the end of January 2010, not including money market funds within investment accounts.
The visitor also asked why I keep so much in savings accounts when the money could be earning more in the stock market. Besides the risk, I expect I’ll need most of this cash within the next year or two for buying a house.
The chart below, designed with Microsoft Excel 2010 Beta with data from Quicken Home & Business, further breaks down my cash by identifying savings accounts and checking accounts at the above banks.
| Bank | Amount | Int Rate as of
Feb. 8, 2010 |
|---|
| ING Direct Business Savings | 43.52% | 1.05% APY |
| ING Direct Orange Savings | 28.93% | 1.20% APY |
| EverBank High Yield Money Market | 6.66% | 1.51% APY |
| ING Direct Electric Orange | 4.40% | 0.25% APY |
| Wachovia Business Money Market | 4.40% | 0.05% APY |
| FNBO Direct Online Savings | 3.15% | 1.40% APY |
| TD Bank Checking Account | 2.48% | 0.00% APY |
| Wachovia Business Checking | 1.74% | 0.05% APY |
| E*TRADE Bank Complete Savings | 1.55% | 0.50% APY |
| Wachovia Crown Banking Checking | 1.28% | 0.05% APY |
| HSBC Advance Online Savings | 1.00% | 1.35% APY |
| Ally Bank Online Savings | 0.53% | 1.49% APY |
| Wachovia Personal Savings | 0.36% | 0.05% APY |
This table shows that there is a lot of room for optimization. I could move money around to take better advantage of the highest of low interest rates. According to a quick calculation, moving all of my money at ING Direct to Ally Bank would only provide an additional $40 per year, at most in interest. That’s hardly a financial incentive at this point, so the only incentive to consolidate accounts would be for simplicity.
Where do you keep your cash? Do you prefer simplification or diversification for your savings?
It’s a new year and a new decade. I expect the next ten years will fly by and 2020 will be here before I know it. Thinking about how fast the future is barreling towards the present is inspiring me to start making real changes in my life, and if there is an opportunity to improve my financial condition along the way, I will do it. I want to start the decade off right.
There are a number of easy steps anyone can take to start the decade off right financially, particularly if personal finance hasn’t been a frequent consideration until now. Last week I mentioned you could set yourself up for a great decade by paying off debt. Another way to start the 10s in conjunction with paying off debt is to open a high-yield savings account.
I’ll be honest: “high-yield” is more of a joke than a description these days. The government of the United States wants to recover from financial crisis by encouraging banks to lend money. The economists in charge of monetary policy are offering these banks really low interest rates when they borrow from the Fed so the banks will in turn be more willing to lend to the public and make some money in the process. While this situation would be great for borrowers, if they qualify for loans, but it has created a bad situation for savers. Those low federal interest rates allow banks to offer laughably low rates on savings accounts to the public.
Just a few years ago banks like HSBC Direct were offering up to 6% APY while now they are offering around 1%. Even at 1%, savings accounts considered “high-yield” are still beating the traditional savings account interest rates you will find if you walk into a bank branch. The typical interest rate for a regular, non-high-yield savings account is 0.05% APY right now. That rate earns you $5 a year on a balance of $10,000. That hardly seems worthwhile.
High-yield savings accounts generally offer interest rates above the rate of inflation. So even though your money is readily accessible through withdrawal at any time, you’re not losing purchasing power while your money is in the bank, like you would be if you keep your cash under your mattress or in a typical low-yield savings account. As the economy improves, high-yield savings account interest rates will increase. These are always variable rates, so unlike most certificates of deposit, you are not locked into today’s lower rates.
If you are looking to keep your finances simple, I suggest choosing just one bank with a high-yield savings account and remaining with them for a long time. I, on the other hand, have savings accounts at about a dozen banks because I test and review them for Consumerism Commentary, but I would prefer a simpler approach for myself.
Choosing a high-yield savings account
When choosing a high-yield savings account, there are several things to consider. First, of course, is the interest rate. Over the past few years, I have seen new banks enter the marketplace with a big marketing push and a surprisingly high interest rate, only to reduce the interest rate to the middle of the pack after a few months. This is a great strategy for attracting attention and new customers who are willing to move their money to follow the top interest rate. I’ve found that rate chasing is not worth the trouble unless the difference between rates would result in an increase more than a hundred dollars a year.
For this reason, you may not want to simply choose the bank with the highest interest rate. You would do better by choosing a bank that has a long history of being towards the top of the list. This listing of historical interest rates will help you determine which banks consistently offer the best.
You may also want to consider other aspects about the bank, such as availability and helpfulness of customer service, ease of website navigation, how long it takes to post electronic deposits, and whether you have access to ATMs for free. For answers to these questions it helps to read reviews written by actual customers.
A high-yield savings account forms the basis of a personal finance portfolio. It should be where your paycheck is directly deposited to allow your money to earn as much for you as possible. Your checking or payment account should be linked to your savings account so you can automatically transfer as much as you need to pay your bills each month in addition to the cash you need to withdraw.
Here are some suggestions:
FNBO Direct. High interest rates and simple website. Read my review.
HSBC Direct. High interest rates. Open an account here.
ING Direct. Average interest rates (for a high-yield account) and helpful customer support. Open an account here.
Ally Bank. High interest rates and simple website. Read my review and open an account here.
This article is part of a series called Start the Decade Off Right on Consumerism Commentary.
Photo credit: walla2chick
Here’s a Black Friday sale I can appreciate. ING Direct is offering a $121 bonus for opening an Electronic Orange checking account today, Friday, November 27, 2009. This is a one-day only sale.
According to ING Direct, consumers pay $121 in overdraft fees, on average, each year. Rather than charging overdraft fees, the Electric Orange includes an overdraft line of credit. This is different than the overdraft protection you find at most banks. As long as your overdraft is within the limit of your line of credit, you pay ING Direct interest on the amount of the overdraft.
ING Direct is also offering a 2% APY “Added Value” certificate of deposit. This is a 12-month CD and the 2% interest rate is 0.25 percentage points above ING Direct’s regular 12-month CD. Qualifying for this rate requires customers to leave their deposit at the bank in full without making any withdrawals.
In a sea of advertising encouraging consumption, it’s good to see a Black Friday special focusing on savings.
Here’s what you need to know to receive the $121 bonus:
- Open an Electric Orange checking with Reference Code EOSAVE.
- Use your Debit Card to make 3 signature transactions (you know, the ones you have to actually sign) within the first 45 days.
- On day 50, ING Direct will put $121 in your account. You have to open today to get the $121 bonus.
Saturday update: The deal has been extended. Those who open up an account after Black Friday are still eligible for the $121 bonus.
Monday update: The deal has concluded.
While most banks are still lowering their interest rates, Ally Bank increased its rate today, November 13, 2009, to 1.64% APY. Although the rate is up, it is only 0.09 percentage points higher than the rate of 1.55% last month, the lowest rate from Ally Bank or GMAC Bank since I started watching interest rates at the beginning of this decade.
It seems like savers are being punished with these low rates, but I don’t see it that way. Inflation is still low, for now, so savers aren’t quite losing ground. But savings accounts aren’t meant to be appreciating investments, anyway. The low rate is the price we pay for safety and quick access to the money.
To compare Ally’s rates with other banks, and to see how the rates have changed over the past two years, check out this list of historical savings interest rates.
With Congress threatening to create new consumer protection agencies to protect the public from customer-unfriendly banking practices, the Federal Reserve stepped in today to prove it is still relevant and involved with banking regulation. The Fed announced that as of July 1, 2010 for new bank accounts or August 15, 2010 for existing accounts, banks must have received permission from their customers before charging overdraft fees.
Overdraft protection will only be an opt-in service. There are some exemptions to this new rule, however. The only type of overdraft protection requiring customers’ consent is the type in which the bank covers the overdraft to cover the debit. If your overdrafts are covered by a linked savings account or credit card, you could still be charged a fee. Usually these fees are lower, such as $5 rather than $35.
Also, only overdrafts caused by transactions with debit cards or ATM cards qualify for opt-in only. If a customer writes a check that causes an overdraft when cashed, the bank is still free to charge an overdraft fee without the account holder’s permission. Banks still argue this overdraft coverage is a benefit that customers want and don’t mind paying the fee. Customers would rather have their rent or utility check go through if it costs $35 to cover the overdraft than to have their check bounce.
According to a recent survey by ING Direct, 24 percent of Americans are angry about overdraft fees. Are you angry? I can’t bring myself to get worked up about these fees, myself; avoiding them is pretty simple:
- Don’t let your bank account get anywhere close to a zero balance. Always keep a buffer in any account you use for making payments. If you get close to zero, you are much more likely to fall into a bank’s trap, including multiple overdraft fees on the same day.
- Don’t count on money you deposit into your account actually being there until you confirm that the cash is available. Sometimes check deposits take more than a week to clear, and banks can still pull back the funds for weeks after the deposit if there is a problem.
- Here are ten tips for avoiding overdraft fees.
Banks will earn almost $40 billion from overdraft fees this year, and you can be sure the industry doesn’t want to see that practically free revenue disappear. When one door closes, another opens. Banks will innovate and find news ways to collect fees. We already see Bank of America planning to charge annual fees to credit card users who pay their balance in full every month. I expect the news will be full of stories about new fees for the next year.
Photo credit: smith
Fed: banks need customer consent on overdraft fees, Associated Press, November 12, 2009
It’s not every day that I find a bank account offering more than 2% APY, but as of October 30, 2009, I’ve discovered one thanks to a reader. “Ski Naut” contacted me yesterday to ask about SFGI Direct’s offer of 2.25% APY. I had not heard of the bank, so I looked into it.
SFGI Direct is the online banking division of Summit Community Bank, based in Moorefield, West Virginia. Deposits at Summit and SFGI Direct are covered by the FDIC as you would expect for any legitimate bank in the United States. To open the online savings account at SFGI Direct, customers will need to provide the typical personal information including Social Security number and employment information. The account requires a $500 minimum balance and initial funding deposits are limited to a maximum of $25,000.
For some people, SFGI Direct may be one of the fastest bank account opening processes from application to use. Like a small number of other banks, SFGI Direct allows “Instant Verification.” Most banks still offer only “Micro-Deposit Verification,” or the even more antiquated “Check Verification.” This means that after your application for opening an account is approved, if you link your new SFGI Direct account to an outside bank that supports this feature, rather than waiting two to three days for Micro-Deposit Verification, you can provide your account access details for the linked account. SFGI Direct will securely and privately confirm your account details with the external bank and allow you to immediately initiate your initial funding deposit.
I attempted to use the Instant Verification option to fund a new SFGI Direct account from ING Direct. Unfortunately, ING Direct’s verification process requires the customer to choose ten identifying questions. I don’t believe I set up ten questions and answers at ING Direct initially, so I was relegated to the slower Micro-Deposit Verification. After the weekend, I will be able to confirm my ownership of my linked account and initiate my funding transfer.
With this generous interest rate in comparison to other savings accounts, I have added SFGI Direct to the list of high-yield savings and checking account interest rates. You can SFGI Direct here.
Update: New customers are not currently welcome at SFGI Direct. As of Friday, November 6, the bank has closed its online application and presented this message on their website:
On Friday, November 6th SFGI Direct will again remove the “Apply Now” button from our website. As many of you noticed in July we removed the “Apply Now” button for approximately 2 months. It is our philosophy to deliver a competitive product to our clients.
SFGI Direct has chosen a strategy to slow down account growth by limiting the application process for new clients instead of dramatically cutting the rates on loyal customers.
