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.
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 1.55% APY as of May 2009.
To recap, ING Direct is now at 2.5% APY, FNBO Direct is currently at 1.65%, E-Trade Bank hasn’t moved from 3.01% since December, and DollarSavingsDirect is currently at 2.0%.
Also notable is WTDirect. This account offers 1.76% 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.
As some of the more popular banks like ING Direct, HSBC Direct and FNBO Direct lower their interest rates, other less-known banks are appearing in their place with higher rates. Some of these banks do not have reputations yet and haven’t been in the public eye for long. Here are a few that you may want to consider, all FDIC insured.
Venture Bank Direct is the new online-only arm of Venture Bank. The Venture Bank Direct “Wise Choice Savings” account has no minimum balance requirement and is currently offering an interest rate of 3.8% APY. Venture Bank is rated two stars by BankRate.
As with all savings accounts, you are allowed to make six withdrawals from the account in any one month period. However, only the first three withdrawals are free; any additional withdrawals are assessed a $1 fee. You can deposit money up to 3 times in one day via ACH with a maximum total of $50,000. You are limited to no more than 3 ACH withdrawals per day with a maximum total of $10,000.
Venture Bank Direct offers support for downloading your activity into Intuit Quicken and Microsoft Money.
DollarSavingsDirect is a new online offering of Emigrant Bank, similar to Emigrant Direct. Emigrant Bank is also rated two stars by BankRate. DollarSavingsDirect offers the “Dollar Savings Account” with a minimum balance of $1,000. DollarSavingsDirect is a reincarnation of Banco Fortuna, Emigrant Bank’s former Spanish-language branch.
While Emigrant Direct’s rate has fallen, DollarSavingsDirect is offering a 4.0% APY, one of the highest rates currently available. Keep in mind that the FDIC will insure your deposits at Emigrant Direct, DollarSavingsDirect, and Emigrant in aggregate, as these banks share an FDIC certificate. For example, for an individual account you can deposit $200,000 in each of these three “banks,” but only $250,000 of your $600,000 would be insured.
I mentioned ShoreBank earlier this year alongside other high-yield savings accounts. ShoreBank, rated two stars by BankRate, expects a $1 minimum balance with its online savings account. The account earns 3.5% APY and is FDIC insured.
This bank focuses on the community and environment. Deposits placed with ShoreBank help fund environmentally-friendly development as well as projects like mortgage rescue programs. Fast Company profiled ShoreBank earlier this year.
If you have experiences with these lesser-known banks, please share your thoughts.
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