It’s not your imagination. Banks are now looking for ways to actively discourage new deposit accounts. It’s not just through lowering interest rates, they are scaling back marketing. It makes sense from a business standpoint; the economy is not so great, so companies are saving their operating expenses.
Here is a summary of the most recent interest rate declines, listed as annual percentage yields (APYs) as of June 13. These accounts are recommended. I have accounts here and I’ve never had any problems with the banks.
- FNBO Direct Online Savings Account dropped to 2.15% (1.50% as of November 2009)
- E*TRADE Bank Max-Rate Savings Account dropped to 1.95% (0.50% as of November 2009)
- HSBC Direct Online Savings Account dropped to 1.85% (1.55% as of November 2009)
- ING Direct Orange Savings Account dropped to 1.65% (1.30% as of November 2009)
- Ally Bank Online Savings Account dropped to 1.64% as of November 2009 (Formerly GMAC Bank)
These accounts are recommended by others but I have no personal experience with the banks.
- ShoreBank Direct Online Savings Account dropped to 2.80% (1.95% as of November 2009)
- Kirkpatrick Bank Savings Square dropped to 2.30% (1.55% as of November 2009)
- Dollar Savings Direct dropped to 2.25% (1.60% as of November 2009)
For a history of savings account interest rates for the last fourteen months or so, take a look at this history of high-yield interest rates. With banks decreasing their rates almost every week, it’s difficult to keep up with the changes.
Where do you keep your savings?
E*TRADE has decided to discontinue its collection of index mutual funds. If you hold shares of ETSPX (S&P 500 index fund), ETRUX (Russell 2000 index fund), ETTIX (technology sector index fund), or ETINX (international index fund), E*TRADE or your broker will automatically sell your shares by March 27, 2009.
Even though index funds are likely the best way for most people to invest in the stock market thanks to low fees and returns that match the index, brokerages don’t have much motivation to offer them. Thanks to the low fees, fund managers don’t generate that much income. Without that income, the managers can’t advertise as prominently. E*TRADE’s S&P 500 index fund is quite competitive, with a expense ratio of 0.09%, lower than Vanguard’s 0.15% for VFINX. But VFINX is much more popular.
E*TRADE will likely try to convert index fund customers to managed fund customers. That’s probably the only way for the company to make money. But keeping the customer in mind, I would recommend using the liquidated funds to buy the equivalent low-cost index fund from Vanguard or Fidelity.
Happy Valentine’s Day! E*TRADE Bank is celebrating the holiday by encouraging customers to go forth and be materialistic and to leave less money in the bank; they’ve lowered the interest rate on their savings account to 2.15% APY.
Ever get the feeling that someone is trying to get you to spend your money, perhaps to stimulate the economy? Banks seem to offer no encouragement for deposits lately. Here are some of the latest interest rate drops over the past few days.
- Dollar Savings Direct has dropped from 4.0% to 3.5% APY (2.0% as of May 2009)
- FNBO Direct has dropped from 2.8% to 2.6% APY (1.65% as of May 2009)
- E*TRADE Bank has dropped from 3.01% to 2.5% APY (0.95% as of May 2009)
- HSBC Direct has dropped from 2.6% to 2.45% APY (1.55% as of May 2009)
- Emigrant Direct has dropped from 2.5% to 2.4% APY (1.55% as of May 2009)
- ING Direct has dropped from 2.4% to 2.2% APY (1.5% as of May 2009)
In order to keep cash available for when an emergency strikes, it may be necessary to occasionally forgo a satisfying interest rate. This is one of those times. These choices are all better than earning 0.1% to 0.3% APY in your local bank branch. If the economy doesn’t pick up this year, we may see more of the same for the immediate future.
If you want to track how interest rates have changed over the past year, take a look at this table which shows a history of savings account interest rates.
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.
Highlights: FNBO Direct, E*TRADE Bank, ING Direct, HSBC Direct, Ally Bank.
There are two main criteria I use to determine the best online savings account and to choose where to put my money when it comes to short-term savings: interest rates and customer service. Interest rates are important because I don’t want my money to lose purchasing power. I’m looking to beat inflation, and many banks do not offering a savings option with high enough interest rates.
In terms of customer service, I look for two important aspects. All account maintenance and transfers should be available through a professional and reliable website. The site should be easy to navigate. It’s rare that I have to call or email a customer service representative, but when I do, I like for them to be knowledgeable, helpful, and available.
Based on my own experiences and reviews from other Consumerism Commentary readers, here are our favorite places for short-term savings. All of the listed interest yields are as of October 2, 2009 and are subject to change by the banks. And here’s a secret: You don’t need to have accounts with many different banks. One or two good banks will do.
FNBO Direct. No fees, no minimum balance. Recently rated best online savings account by Kiplinger, FNBO Direct is the online arm of First National Bank of Omaha. Since opening this account in September, I’ve been directing most of my new deposits here. 1.50% APY.
E*TRADE Bank. No fees, no minimum balance. I’ve been a customer of E*TRADE for several years, mainly for my company stock purchase plan. 0.50% APY.
ING Direct. No fees, no minimum balance. ING Direct has a great website and I’ve never had any customer service problems. My favorite feature is the ability to split your account into several labeled subaccounts. 1.3% APY.
Note: ING Direct offers a $25 bonus to new customers who deposit $250 or more. Once you have an account you can earn $500 by referring other customers. Get a $25 bonus here.
HSBC Direct. No fees, no minimum balance. HSBC Direct entered the race with one of the highest interest rates ever available on a high-yield online savings account, 6% APY. That was about two years ago. Since then, HSBC Direct has continued to be towards the top of any list of online bank accounts. 1.35% APY.
Ally Bank. GMAC Bank is now Ally Bank, and the company has started a marketing campaign and using high interest rates to draw in new customers. Savings accounts, CDs, and money market accounts at Ally Bank are insured through the FDIC so as long as you don’t go over the FDIC limits, GM’s bankruptcy should not affect your deposits. 1.64% APY.
What is your favorite online savings account? Share your thoughts in the comments below. Here are a few more banks to round out the selection.
- Discover Bank is offering 1.85%.
- Presidential Bank is offering up to 1.25% APY.
- VirtualBank is offering up to 1.82% APY.
- DollarSavingsDirect is offering 1.70% APY.
I’ve received a number of requests to add EverBank to this list. Please read my thoughts about EverBank so far. EverBank is currently offering a 1.51% APY with a bonus rate up to 1.77% for the first year for new accounts including a 3-month bonus rate of 2.51%.
For more, see this list of high-yield savings accounts. I have been tracking the rate changes for almost a year, and this list gives you an idea of who has been consistently offering high interest rates.
Note: As of October 28, this deal is no longer available.
This is just a quick reminder that the promotion for the $25 bonus offered by E*TRADE Bank ends today. In order to qualify for the $25, you must open your account by today and fund the account with at least $5,000 by Monday, November 10.
A number of people reported that referral bonuses offered by E*TRADE Bank pay $25 and have no minimum balance requirement. If you can find someone to refer you, that is definitely a better deal. However, if you plan on keeping $5,000 at E*TRADE anyway, these two promotions offer the same benefit. Here are further details and here is the application.
Note: As of October 28, this deal is no longer available.
E*TRADE Bank is currently offering a $25 bonus for opening a new savings account, but the promotion is ending soon. If you’re interested in earning this easy money, there are a few dates you should know:
Monday, October 27, 2008 is the deadline for opening the bank account. Your application must be submitted online by this date.
By Monday, November 10, 2008, your bank account balance must be $5,000. You don’t have to open the account with this amount of money, but the balance must be at this level or above by this date. If your balance is below $5,000 on November 10, you will not qualify for the $25 bonus. This is higher than most other requirements for a cash bonus, but ACH makes it fairly simple to move money from one bank to another.
On or before Monday, November 24, 2008, E*TRADE Bank will credit your account by $25, as long as you met the above requirements.
When you view the account opening application, look for the “$25″ bonus notification at the top right of the screen. If you don’t see it, either you missed the deadline or you’re using an incorrect link. This bonus is only available through Consumerism Commentary.
Since July 2, E*TRADE Bank’s current interest rate has yielded an annual 3.30%. If you keep $5,000 in the account for a year (which you do not have to do after qualifying for the bonus), the extra $25 effectively raises your interest rate significantly.
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