Over the last decade, on-line savings accounts have grown into prominence, first with new internet-only banks offering high-yield accounts thanks to their low overhead costs, and followed by old-fashioned brick-and-mortar banks offering on-line accounts to give the newcomers competition. For more than one year, I’ve been tracking and charting interest rate changes for a number of the more popular high-yield savings accounts to detect trends and help determine where to deposit my own cash.

With the proliferation of easily-accessed information, simple account opening processes, and almost-immediate deposits through Automated Clearing House (ACH), switching from one bank to another and moving all of your cash takes only a few days. When the economy was in a different situation and interest rates were higher, aggressive savers maximized their earned interest by transferring their balances from one bank to the next bank whose rate leapfrogged past the previous leader.

I’ve never been a fan of chasing rates, and here’s why.

1. There is more to a savings account than the interest rate. You want to find and stick with an option that provides high interest rates, but you also should seek good customer service, a comfortable website, corporate ethics, and security. This is the primary reason many people stick with ING Direct despite their comparatively low interest rates. ING Direct has a great reputation, a website that hasn’t garnered many complaints, and friendly customer service. (This bank did receive some flak surrounding their Electric Orange checking account when surprise credit checks resulted in account closings.)

2. You lose interest income in the transfer. When you transfer money from one bank to another, you may lose several days in interest, negating a portion of the bump you’re hoping to see when you move to a higher-yield account. Some electronic transfers can take three days. The initiating bank debits your account one day for the transfer. The receiving bank receives your money through ACH the next business day, but doesn’t credit your account. The bank keeps your money for a day or two, earning interest for the bank on the “float,” and finally credits your new account sometimes several days later. Some banks are worse than others in this regard; E*TRADE Bank reportedly offers one of the fastest transfers.

3. Banks will often hold your deposits for several days. ING Direct will hold initial deposits for five days. Keep in mind that one of the features of savings accounts — the reason you accept interest rates lower than what you could possibly earn in certificates of deposit (CDs), bonds, or stocks — is that they are liquid. You should be able to access and withdraw your money at any time. If your funds are held hostage for five days, you could find yourself in a predicament without access to your emergency fund. Banks often hold subsequent deposits, too, particularly when you deposit a check.

4. Past performance is not an indicator of future results. This is illustrated by the tables of historical interest rates. Here is an example: A few months ago, a “new” on-line high-yield bank arrived. DollarSavingsDirect is a division of Emgirant Bank in New York, re-branded from a Spanish language-focused branch-based bank to an on-line cousin to Emigrant Direct. This bank, like Emigrant Direct when it started years earlier, came on the scene with a high interest rate to attract new customers. Shortly after gaining attention in the media and the blogs with its stratospheric initial interest rate offering, these interest rates began to fall. When they did, the rates decreased much faster than those at other banks. Banks that were once on the top of the list of interest rates are now in the middle of the pack.

5. Most people don’t transfer enough cash from bank to bank to make the effort worthwhile. If you move $5,000 from one bank to another to take advantage of a 0.05 percentage point yield increase, you will earn at most $25. This amount may seem like a good deal for thirty minutes of work, but that’s not an income source that is repeatable.

If you have $100,000, seeking the highest interest rate may be worthwhile, but I wouldn’t suggest keeping that much in savings accounts unless you’re saving for something specific and you’ll need to access the money in less than six months. While transferring $100,000 from one bank to the next may result in worthwhile income, you should consider finding high-yield certificates of deposit and earn even more than you would with savings.

My recommended approach still involves keeping yourself informed of the best interest rates and the best overall savings accounts. However, rather than switching your money continually from one bank to another depending on who is king of the hill at any one time, I suggest depositing new money into your choice of savings account. We get into habits, thanks to the wonders of automation and direct deposit. But the choices we made years ago may not be what’s best for the present and the future. When you receive checks, consider which banks are offering you the best deals right now. Without moving your money around, you can still take advantage of the highest interest rates.

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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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HSBC Direct must have heard that I was planning to transfer some of my savings to the bank, which until yesterday had been offering 3.0% APY. Following other banks that lowered interest rates for the new year, HSBC dropped their interest rate 13% to 2.6% APY and is now 1.10% APY as of June 2010.

To recap, ING Direct is now at 1.10% APY, FNBO Direct is currently at 1.10%, E-Trade Bank has moved a lot from 3.01% to 0.50%, and DollarSavingsDirect is currently at 1.20%.

Also notable is WTDirect. This account offers 1.16% APY on balances over $10,000, and if you don’t have that much cash in the bank, you’ll still get that high rate for 60 days after owning the account.

I’ve updated the list of high-yield savings and checking accounts.

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