Note: The information in this article is no longer current. It was updated September 2, 2011 and originally published February 18, 2009.
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.
Updated June 16, 2012 and originally published February 18, 2009.