While most banks are still lowering their interest rates, Ally Bank increased its rate today, November 13, 2009, to 1.64% APY. Although the rate is up, it is only 0.09 percentage points higher than the rate of 1.55% last month, the lowest rate from Ally Bank or GMAC Bank since I started watching interest rates at the beginning of this decade.
It seems like savers are being punished with these low rates, but I don’t see it that way. Inflation is still low, for now, so savers aren’t quite losing ground. But savings accounts aren’t meant to be appreciating investments, anyway. The low rate is the price we pay for safety and quick access to the money.
To compare Ally’s rates with other banks, and to see how the rates have changed over the past two years, check out this list of historical savings interest rates.
It’s not every day that I find a bank account offering more than 2% APY, but as of October 30, 2009, I’ve discovered one thanks to a reader. “Ski Naut” contacted me yesterday to ask about SFGI Direct’s offer of 2.25% APY. I had not heard of the bank, so I looked into it.
SFGI Direct is the online banking division of Summit Community Bank, based in Moorefield, West Virginia. Deposits at Summit and SFGI Direct are covered by the FDIC as you would expect for any legitimate bank in the United States. To open the online savings account at SFGI Direct, customers will need to provide the typical personal information including Social Security number and employment information. The account requires a $500 minimum balance and initial funding deposits are limited to a maximum of $25,000.
For some people, SFGI Direct may be one of the fastest bank account opening processes from application to use. Like a small number of other banks, SFGI Direct allows “Instant Verification.” Most banks still offer only “Micro-Deposit Verification,” or the even more antiquated “Check Verification.” This means that after your application for opening an account is approved, if you link your new SFGI Direct account to an outside bank that supports this feature, rather than waiting two to three days for Micro-Deposit Verification, you can provide your account access details for the linked account. SFGI Direct will securely and privately confirm your account details with the external bank and allow you to immediately initiate your initial funding deposit.
I attempted to use the Instant Verification option to fund a new SFGI Direct account from ING Direct. Unfortunately, ING Direct’s verification process requires the customer to choose ten identifying questions. I don’t believe I set up ten questions and answers at ING Direct initially, so I was relegated to the slower Micro-Deposit Verification. After the weekend, I will be able to confirm my ownership of my linked account and initiate my funding transfer.
With this generous interest rate in comparison to other savings accounts, I have added SFGI Direct to the list of high-yield savings and checking account interest rates. You can SFGI Direct here.
Update: New customers are not currently welcome at SFGI Direct. As of Friday, November 6, the bank has closed its online application and presented this message on their website:
On Friday, November 6th SFGI Direct will again remove the “Apply Now” button from our website. As many of you noticed in July we removed the “Apply Now” button for approximately 2 months. It is our philosophy to deliver a competitive product to our clients.
SFGI Direct has chosen a strategy to slow down account growth by limiting the application process for new clients instead of dramatically cutting the rates on loyal customers.
I received the bad news earlier today. Continuing the trend across the banking industry, FNBO Direct has determined that it can afford to lower the interest rate offered on the bank’s savings account from 2.6% to 2.4% APY. Compared to many other popular online banks, this rate is still very competitive, and I can practically guarantee that it beats leaving your cash in a typical brick-and-mortar savings account. A few months ago, Kiplinger rated FNBO Direct as the best online savings account.
WTDirect has also dropped its interest rate to yield 2.16%. The catch with this account is that customers need a balance of at least $10,000 in the account before qualifying for this rate.
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.
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.
Throughout December, WTDirect has been offering an opportunity for new customers to earn up to $250 by opening a new account. The bank is offering a good interest rate right now (3.06% APY) for customers with balances of $10,000 or higher.
The opportunity to earn this bonus is ending tomorrow, December 31, 2008. Here is what you need to know in order to qualify.
Open an account at WTDirect and link your existing bank account while applying. Before December 31, fund the account with an online transfer from your linked bank account. Maintain an average balance of at least $10,000 between January 1 and February 28, 2009. If you’ve done this much, you will receive your bonus in March, and it will be available for withdrawal immediately.
Here is how to determine the amount of your bonus, based on your average balance throughout January and February.
- If your average balance is at least $10,000, you will receive a $50 bonus.
- If your average balance is at least $20,000, you will receive a $100 bonus.
- If your average balance is at least $30,000, you will receive a $150 bonus.
- If your average balance is at least $40,000, you will receive a $200 bonus.
- If your average balance is at least $50,000, you will receive a $250 bonus.
WTDirect does not charge any fees nor does it have a minimum balance requirement (other than for the bonus and the interest rate).
When you apply for the bank account, use the promotion code WTG3DNC. This code will be automatically applied if you visit WTDirect using this link.
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.
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