WTDirect is offering a bonus for new customers who open a savings account. Above the 3.31% APY interest rate, WTDirect is offering a sign-up bonus of up to $250. You’ll have to deposit a significant sum, however, and keep the funds deposited in the bank for 60 days.

The bonus is different depending on how high you keep the balance for that time period. See the following chart:

That’s a significant bonus for not a lot of effort. To qualify for the bonus, open a savings account at WTDirect and use the unfortunate promotion code WTF3SOB.

August 25, 2008 Update: This promotion has been canceled early due to popularity beyond WTDirect’s expectations, according to the bank.

As I mentioned yesterday, Washington Mutual has leapfrogged ahead, raising the interest rate offered on the bank’s online savings account to 3.75% APY. I’ve updated the list of highest online savings account interest rates to reflect the current rate leader.

Here is a summary of the highest interest rates on well-known banks currently offered, as of July 31, 2008.

Washington Mutual Online Savings Account
3.75% APY

The Washington Mutual Online Savings Account is only available online, not in WaMu bank branches. If you also sign up for a WaMu Free Checking Account, you will avoid a monthly service charge of $4.00. This fee can also be avoided by maintaining a balance of at least $300 each day of the monthly statement cycle.

There is some concern about the stability of Washington Mutual considering the company’s recent losses. In fact, the bank’s need to attract capital is probably a strong driver behind the bank’s decision to raise interest rates and attract more savings customers. I wouldn’t say your money’s at risk if deposited here; the FDIC has you covered if you stay within the limits.

Some of WaMu’s deposits are held at Washington Mutual Bank fsb (Utah) with a CAEL rating of 1 (best), while some deposits are held at Washington Mutual Bank (Nevada) with a CAEL rating of 5 (worst). This rating is used to determine a bank’s stability, but a rating of 5 doesn’t guarantee a collapse and a rating of 1 doesn’t guarantee against one.

If you are interested in Washington Mutual’s Online Savings Account, apply here.

HSBC Direct Online Savings Account
3.50% APY

HSBC Direct is currently offering a “promotional” interest rate of 3.50% APY through September 15, recently extended beyond the original expiration of August 15. HSBC Direct has a track record of offering very competitive rates, and I believe that will continue when (and if) the “promotional” period ends. I have been adding more to my HSBC Direct account to take advantage of their habit of high interest rates.

Unlike Washington Mutual, HSBC Direct requires no minimum balance and has no recurring account fees.

If you are interested in HSBC Direct’s Online Savings Account, apply here.

FNBO Direct Online Savings Account
3.50% APY

FNBO Direct is a newcomer to the online banking arena having launched a little over a year ago, but the bank behind the online presence, First National Bank of Omaha, has been around since 1857 and currently has 38 branches in Nebraska, Iowa, and Texas. First National Bank of Omaha has a CAEL rating of 2 (1 is the highest rating, 5 is the lowest). This means that even though the online account is a new offering, the bank is in good shape and most likely won’t fail like others have recently.

If you’re interested in FNBO Direct’s Online Savings Account, apply here.

ShoreBank High-Yield Savings
3.50%

This account is a newcomer. ShoreBank requires no minimum balance and charges no account fees for this online account. An appealing feature is the bank’s attitude toward community development and the environment. Like most banks, ShoreBank turns a portion of deposits into loans. This bank focuses on “loans for projects that promote the efficient use of materials, resources, or alternative sources of energy, that promote the elimination of toxins, and that protect or revitalize land or water.”

If you’re interested in ShoreBank’s High-Yield Savings Account, apply here.

ING Direct Electric Orange Savings Account
3.0% APY

No list of the top online savings accounts is complete without ING Direct. They are no longer the interest rate leader, offering only 3.0% APY. In fact, it’s been some time since ING Direct has been at the top of any interest rate list, but there are several reasons to include them here. They were one of the first banks to popularize the idea of high-yield online-only savings accounts. ING Direct still maintains one of the strongest presences thanks to a vast customer base, good customer support, and a sensible and simple website.

Even though the advertised interest rate is lower than others, new customers can greatly increase their effective interest rate by grabbing a $25 bonus for opening an account. The bonus will work for anyone who opens the account with $250 and leaves at least $250 in the account for 30 days. If you deposit that initial $250 and nothing else for the year, the interest you earn, because the bonus is considered interest income, will amount to 13.3% APY. I can bet you that rate is unbeatable. Of course, that’s 13.3% on only $275. If your initial deposit is higher, or if you add money throughout the year, your effective interest rate will gradually decline back down towards 3.0%.

ING Direct has no minimum balances or account fees.

If you’re interested in ING Direct’s Electric Orange Savings Account, apply here. However, if you want to see if you qualify for a $25 account opening bonus, find out here.

The people at SmartyPig contacted me recently to offer a $100 gift card for use on their site to a Consumerism Commentary reader.

SmartyPig has been mentioned on a few personal finance blogs recently, and here’s the deal. SmartyPig is a savings account, FDIC insured, currently earning 4.30% APY. Depositors’ funds are held by West Bank, an institution based in Iowa (not the Middle East as the name might suggest). The draw of SmartyPig is that the account is tied to specific saving goals.

For example, if you are planning to buy an engagement ring, you can create an interest-bearing account with SmartyPig directed towards that goal. After creating the savings account, you can “share” the account with others, such as friends, who can contribute to your savings goal. The inspiration comes from 529 education accounts, which are designed with a specific goal in mind (education for children or another family member) and allow contributions from others.

My take

The philosophy behind SmartyPig is refreshing. Saving towards goals is important, and any method of “sharing” your goals with others, publicizing to the world (or your circle of friends), can only be a positive influence. There are many media reports across the United States about our average citizen savings rate, and in many ways of measuring, as a whole our society may be spending more than we earn. Encouraging savings can help to move this measurement in a positive direction.

Unfortunately, I don’t see SmartyPig as a perfect solution to the problem of savings towards goals. Customers should be aware of some fees that SmartyPig may charge. First of all, contributions towards your goals at SmartyPig are generally initiated through an automatic monthly contribution. Make sure your funding source always has funds available. Otherwise, you will be subject to a $25 insufficient funds fee. This fee itself is worth mentioning, although it’s fairly typical in comparison with other banks.

It’s worth noting that SmartyPig is designed to be most beneficial when savings towards a specific spending goal, like the engagement mentioned earlier or a high-definition television. If you have a savings goal, like an emergency fund, you might be better off placing your funds in a no-fee, high-interest savings account.

Here’s why. To redeem your funds from SmartyPig once your goal has been reached, you can opt for receiving either a pre-paid MasterCard debit card or a gift card at a number of retailers. The list of retail shops offering gift cards include Best Buy, Amazon.com, Marriott, Home Depot, and Babies ‘R Us. If you opt to redeem your savings in the form of a retail gift card, you will receive a bonus up to 5% of your savings.

That’s not a bad deal, but there’s a catch. If you’d prefer to close your SmartyPig account once reaching your goal and receive your funds in the form of a check, you will be charged a $25 fee. To withdraw your own money, you must pay $25. This is unlike any other savings account of which I am aware. Bank-to-bank transfers out of the SmartyPig account are not allowed to encourage sticking to your goals.

Although SmartyPig encourages sharing your goals with family and friends in the interest of motivation and progress, it’s actually in the company’s financial interest. Anyone who contributes to a savings goal other than their own, including your friends who contribute to your account, will be charged a $4.95 fee for the privilege. This fee will change to 2.9% for contributions funded by credit card and eliminated for contributions funded by a linked savings or checking account.

The bottom line

SmartyPig presents a unique approach to reaching and sharing your savings goals. Once you open your account and set your first goal, your contributions—and the contributions of your friends and family—will earn a high interest rate. The bonus of up to 5% when you redeem your savings is more than you can get from credit cards and is a contributing factor to my recommendation.

If you know that you need to save incrementally to spend a sum of money on an item that is accessible via one of the vendors that have “partnered” with SmartyPig, this account can be a fun and motivating way to save for your spending goal, if you’re careful to avoid fees. Other people, habitual savers for example, will get better bang for their saved buck in a more liquid savings account at a bank offering high-yield interest rates, where withdrawals are free at any time.

$100 giveaway

Is SmartyPig for you? If so, I have a $100 gift card for you, redeemable only in a SmaryPig account. Write a comment below to tell me about your savings goal, and I will choose a winner randomly in the near future. This offer is only valid for individuals with mailing addresses in the United States or Canada and only one entry per name, email address, or IP address is permitted. Please leave a valid email address so I can contact you if you’re selected. If you don’t want to write about your savings goal, that’s fine, too. Any comment here will contribute towards your entry in the giveaway.

Good luck!

Consumerism Commentary visitor Diane asked about the bank that is currently topping the list of high-yield savings accounts, OneUnited, which is currently offering 5.30% APY.

I wonder about that Unity Gold E-Savings at OneUnited at the top of the list. That is 1% better than Emigrant where I am now, which translates into $500/year. Have you heard anything about it? If I understand the website correctly they only credit the account quarterly. Anyone have any dealings with it?

I have no experience with OneUnited, so if anyone else does, please feel free to leave a comment. I’ve read that people have had poor experiences with customer support and ACH transfers are often delayed beyond the standard 3-day period. The account requires a $1,000 minimum initial deposit and interest is only earned when the balance is above $1,000. They do credit your interest quarterly, so you could end up losing a substantial amount of interest if you close at the “wrong time,” like right before the interested is credited.

How important is that? Are you willing to deal with poor customer service in order to receive one of the highest rates?

Consumerism Commentary reader Allison wrote in to let me know about Savings Square, a high-yield savings account offering competitive rates. The account is offered by Kirkpatrick Bank, FDIC insured. I hadn’t heard of the account until today. Here’s what Allison wrote about her experience with the account so far:

When I first set up my account, there was a problem with my first transfer of cash from my regular debit account to Savings Square. I finally called their HQ, and a wonderful representative explored reasons for the stall, called back multiple times exactly when she said she would, offered alternatives for getting the money to the account while the problem was being corrected, and followed up a few days after the correction to make sure I was happy with the end results. I’ve called them a couple more times with random questions, and they’ve always offered excellent service. At this point, there’s not much that will make me move my cash.

There are other positive reviews online, though most disappointment stems from the timing of transfers. While a 10-day hold on initial deposits is normal for the industry, customers have seen spotty performance with other transfers that should be executed within three days or one day.

Savings Square’s current APY of 4.8% puts them towards the top of the pack of high-yield savings account.

Update: Washington Mutual and HSBC Direct lowered the APY offered on their savings accounts, and I expect more to follow as the Fed lowers interest rates again tomorrow.

Thanks to Ross who wrote in yesterday about FNBO Direct’s latest interest rate drop. With this information, and with a reader emailed suggestion of tracking the rates over time, I redesigned the list of high-yield savings and checking accounts. Additionally, I’m also including accounts not insured by the FDIC, like money market funds, though I am still gathering information on those.

The new table is a Google spreadsheet that is embeddable in web pages. So if you’d like to embed the spreadsheet on your own web site, let me know, and I’ll send you the code to do so. View the list of high interest accounts here.

Now, here are some interesting articles from around the web. Read the rest of this article »

I know people who are still nervous about online banking, particularly with banks that have no major offline presence. Part of me wants them to embrace the future in which we live and get with the times. However, I understand it’s a slow and cautious process for many people, especially when there’s a level of comfortability with visiting a branch and seeing the same people you’ve known for years.

When a bank fails and liquidates it assets, it’s big news. NetBank filed for bankruptcy last month with $2.5 billion in assets and $2.3 billion in deposits (liabilities). From the reports I’ve seen since then, customers barely felt a thing. There have been some complaints, but mainly from people who held over $100,000 at the bank.

No one should have more than $100,000 at the same bank. If you need to keep that much cash around, diversify into other banks. The FDIC, the organization that insures deposits—they will cover your funds if a bank collapses—limits their protection to $100,000 per social security number per bank. If you have a joint account, you can get away with another $100,000 in that account. But for most purposes, if you need to keep more than that in accessible liquid accounts, open up an account at a new account for each $100,000 you have.

Another option is to put money in CDs with the same bank, but again, this also should be limited to $100,000. Most of the people who have not been able to access their money quickly after NetBank’s collapse had more than $100,000 deposited in the same account.

NetBank wasn’t the only bank to fail.

The year’s first bank failure came in February with Metropolitan Savings Bank of Pittsburgh, a small bank with just $15.8 million in assets. It was notable, though, because it was the first bank to go under since June 25, 2004. That was the longest streak without a bank failure since the FDIC was created in 1933.

The year’s second failure came in September when NetBank, an Internet bank based in Alpharetta, Ga., was closed by federal regulators. Depositors of the $2.5 billion-asset bank were assumed by ING Bank. NetBank had about $109 million in uninsured deposits. NetBank was the largest failure in 14 years.

The third failure occurred in early October at Miami Valley Bank of Lakeview, Ohio, an $86.7 million bank (Three bank failures spur concerns, Reuters).

I must note that two of those three banks were typical brick-and-mortar institutions. Online banks are as safe as banks with branches, as long as you see the FDIC symbol. If you still don’t trust the bank’s website, search for the bank on FDIC’s Institution Search website.

Password security is another issue, but I still believe that online security is more stringent than human behavior in person. While people trust restaurant waiters to disappear for several minutes at a time with our credit card, some are still shaky about typing the credit card number into an web form that submits information with 128-bit (very strong) encryption. When you hear of laptops with customer information disappearing or falling into the wrong hands, that has little to do with online vs. offline activity.

Bank online without fear.

As expected, ING Direct was the first bank to lower savings and checking interest rates today in response to the Federal Reserve Board’s interest rate reduction.

ING DIRECT’s Orange Savings Account has changed to 4.20% APY.

The rates for the Electric Orange Checking Account have changed as well. The new tiers are:

• $0-49,999.99 earns a 3.25% APY
• $50,000.00-$99,999.99 earns a 4.75% APY
• $100,000.00 or more earns a 4.90% APY

I expect more banks to follow