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?
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.
The way banks are dropping interest rates on savings accounts, you would think they don’t want your money. Most “high-yield” savings accounts now offer rates well under 3%. HSBC Direct is the latest to announce an interest rate cut, from 2.6% to 2.45% APY and is currently at 1.55% as of May 2009. Obviously there is more that goes into the decision to cut rates than attracting customers, but online banking is more of a commodity now. Saving and lending money is less focused on community. The sheer number of banks that are available to any customer at a click of a button results in competition, but the field is mostly homogeneous.
For many customers focused on making the most out of their cash, the interest rate is the most important feature of a bank. Friendly tellers and community service are no longer major drivers when choosing an institution to keep money, particularly amongst the surge of online-only banks. The best online banks do focus on customer service and user experience, however. But the bottom line is money. The force of compound interest is so important, and when you’re dealing with significant cash in the bank, you want to ensure your money is earning as much as possible.
When I started seriously managing my money towards the beginning of this millennium, I chose ING Direct because its rate was the highest and it came highly recommended from people I trust. I’ve discovered since then that this bank offers good customer service and a decent online experience, so I continue to recommend them to friends and readers who want to get started. And it’s hard to ignore your ability to earn $525 just for opening a new account there. Their rate is no longer the highest, but it not far behind HSBC Direct, at 1.5% APY.
There are ten fresh referral codes as of last night for ING Direct’s Orange Savings Account. These allow new customers to earn $25 right away for opening a savings account and they are provided by Consumerism Commentary readers. If used properly, with a $250 initial deposit, the depositor receives this bonus while the reader who provided the link receives a $10 bonus. Once a new account is open, the customer should receive referral links of his own to share.
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.
One thing to keep your eye on in 2009 is your savings account. Over the past few days, several banks have lowered the interest rates on high-yield savings accounts. This is not a good sign for those who want to have liquid assets without losing purchasing power. You may want to start the new year by evaluating your choices and moving your cash to where it can earn some more interest. I don’t normally suggest chasing rates, but the beginning of the year may be a good time to refresh if you don’t do it often.
Here are some of the recent drops.
ING Direct celebrated early the other day by dropping the interest rate on their famous Orange Savings Account to 2.50% APY. The yield was 2.75% last week and 3.0% back in October. This coincides with the bank’s second interest reduction in one month on the less famous Electric Orange Checking Account. New rates for the balance tiers are 0.5%, 2.6%, and 2.8% APY.
FNBO Direct dropped its interest rate from 3.25% to 2.8% APY. This is the second highest rate among the accounts I consider to be the best online savings accounts, with HSBC Direct’s 3.0% APY being the highest.
GMAC Bank dropped the rate of its online savings account from 3.75% to 3.25% APY and its money market account from 3.25% to 2.75% APY.
Emigrant Direct lowered its interest rate from 3.0% to 2.75% APY while this bank’s “cousin,” DollarSavingsDirect, remains at the top of the list of accounts I can recommend, offering 4.0% APY.
Here’s a full list of high-yield savings accounts and checking accounts with rates current, as of today.
HSBC Direct lowered the interst rate offered on its online savings account to an annual yield of 3.0% today, almost two years after the bank offered a leading 6.0% APY.
Here’s their latest corporate communication, sent to all account holders:
Since I last wrote to you in mid September we have seen much change in the global financial markets landscape. In light of these changes, HSBC has reviewed the rate associated with your Online Savings Account. The rate will be adjusted to 3.00% APY* effective October 21, 2008. This rate remains one of the highest available and 7x the national average.
I’ll update the list of popular online interest rates shortly to include the latest bank to drop its rate. Where do you keep your short-term savings? Much of mine is still at ING Direct (currently at 2.75% APY), though I’ve spread out my savings to a number of banks and money market funds.
This morning, online bank HSBC Direct ended the extended promotion in which customers were offered a savings account earning interest of 3.50% annual percentage yield. This was planned; when the promotion was extended back in July, the company warned that after September 15, the interest rate would return to normal, which it has.
The interest rate is still competitive, at 3.25%. I don’t suggest chasing the highest rate at all times when the difference is only a few basis points, but if you’re opening a new account, it helps to weigh the interest rate with your need for excellent customer support.
With recent events, you may even want to forego high interest rates when the stability of the bank is in question. With FDIC insurance, it’s unlikely you’ll lose your money, but it helps to consider a bank’s stability to avoid any hassles or delays.
For example, Washington Mutual is currently offering 3.75%, one of the highest interest rates for a liquid savings or money market account you can find. But according to news reports, the bank is in trouble. Rates are high to attract capital, something WaMu needs at this point. If WaMu is acquired by another bank, a withdrawal during a conversion period may not be processed as quickly as you might expect. As long as you stay under the FDIC limits, your money will be there, but perhaps not at the precise minute it is needed.
FNBO Direct also offers a relatively high interest rate of 3.50% APY. The bank behind the online savings account, First National Bank of Omaha, has four stars out of five from BankRate and a Safe & Sound CAEL Rating of 2 (with 1 being the best).
I still have most of my cash at ING Direct, though I’ve begun spreading it around to other banks to take advantage of higher rates. ING Direct don’t offer the most interest but they are consistently not far from the top. Their website is simple and I’ve never had any problems with accessing my money. I hear their customer service is usually top-notch, but I’ve never had to use them.
If you have $250 to deposit, you can earn a $25 bonus by opening a new account at ING Direct.
I received an email to inform me that HSBC Direct has extended its “promotional” interest rate on the online savings account of 3.5% APY to September 15, increasing this promotion by one month.
I’m not sure what the difference is between a “promotional” rate and any other rate; as always, interest rates on savings account are subject to change at any time. Perhaps HSBC Direct has simply planned when it will lower its rates while other banks generally keep that information private until the change occurs.
3.5% is the best rate you can get right now for internet-based savings accounts backed by major financial institutions. This rate would put HSBC Direct at the top of the list, but I’m keeping them listed with their last known non-promotional rate.
HSBC Direct does not offer a referral program, however. When you open an account at ING Direct, you can earn a $25 bonus immediately (accessible after 30 days) simply using a referral link generously offered by Consumerism Commentary readers (and one-time visitors). Keep in mind you need to open the account with an intial deposit of at least $250, and keep your money there for a month.
I’ve updated the list of referral links to include some new ones as each link can only be used once.
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