If you have any questions for me, I encourage you to go ahead an ask. It’s great to hear from readers, whether it’s to ask a question or challenge me on my opinions. The link to contact me is unfortunately now buried at the very bottom of this website, or you can just click here to send me a message. For financial questions where anonymity might be important, particularly if you have a question about your personal situation and would like me to ask the readers, there is an option to send me a message without providing your personal information. This has come in handy with readers many times.
A question I received recently pertained to my savings accounts. Here it is, from reader Mike:
Do you still have an account with Capital One 360 and their 0.75% APY?
I ask this in a sarcastic manner. Having recently found your article from November 13, 2012 talking about how Capital One was at the time taking over ING Direct and that you did not see enough reason to close your account. Even though a savings account is for protection and not an investment I still find it hard to swallow that all Capital One and the other online savings account sites can only offer a pitiful 0.9% at most.
When I first opened an account at ING Direct, the interest rate was more than 4% APY. Those were good times, at least compared to the world of deposit accounts since the recession. I was earning those higher rates on a much smaller balance than I had at the bank later on, when rates all across the board tanked to below 1%.
Banks offer higher rates on savings accounts to attract customers. But with a facility to borrow money from the Federal Reserve at insanely low rates, close to zero, there’s no incentive to offer higher rates to average depositors like you and me. Experts who watch the Federal Reserve Board believe they may start raising rates, or at least hint at the possibility of raising rates sometime in the future, after the next meeting this month. It could be a long time before banks decide to offer rates on savings accounts that exceed the historical rate of inflation.
Savings is an important part of a household’s financial picture, regardless of the interest rate. Low rates make savings more painful.
Let’s get to my savings accounts, which were the real focus of the question. My last public financial statement was from December 2011 and didn’t include anything in my business accounts. The statement indicated I had $66,531 in savings, and almost all of this was in ING Direct (now Capital One 360) savings accounts. This was technically after the sale of my business (Consumerism Commentary), but I didn’t include any proceeds from the sale in my public balance sheets. But that ING Direct/Capital One 360 account remained roughly the same after the sale.
Since the time of that final balance sheet, I’ve occasionally withdrawn from the savings account, but it is still open. And, in fact, the $17,000 in my Capital One 360 account reflects nearly the totality of my cash savings; everything else is invested. I’ve left my investments alone for the most part, and have been living mostly on the income from the company that purchased Consumerism Commentary. But in order to make that work, I have to occasionally dip into my savings to assist. It’s a better choice than selling investments. Had I planned my taxes a little more carefully, and had I better anticipated what my tax bill would be with the change in investment income rates, I could have kept more cash ready to go, but it didn’t work out that way.
Capital One’s purchase of ING Direct and the resulting Capital One 360 brand have had no impact on the quality of the account. I am certain the interest rate would be the same regardless of the name of the company or the corporate owner.
My account at Capital One 360 has survived the Great Consolidation.
Over the last eleven years, I’ve opened savings accounts at dozens of banks to review the process and the experience of being a customer for readers. I don’t know of many other reviewers who have gone so far to review savings accounts; most reviewers take a look at the terms or the advertising copy and base their reviews on that. Since selling the site, I’ve had no need to continue opening savings accounts across the country and the internet. And I wouldn’t advise most people to have savings accounts at dozens of different banks. So I took some of my own advice and began closing accounts, moving cash to either Capital One 360 or Wells Fargo, the latter of which is where I still having my primary personal and business checking accounts.
That was the Great Consolidation. It took a few years, with the last account (American Express Personal Savings, currently offering 0.8% APY) closed a few weeks ago. Why close American Express when it’s five basis points higher than Capital One 360? It really doesn’t make a difference. Well, it makes a difference of $8.50 a year. Although, I wouldn’t like paying an $8.50 yearly fee for a savings account, the difference in interest earned isn’t that much of a big deal. I’m not chasing rates now — in fact, I never chased rates.
Considering it would take as much effort to close the Capital One 360 account as it would take to close the American Express Personal Savings account, there’s no reason I can give other than habit. I’ve had the Capital One 360 account longer (as ING Direct), and even though it’s no longer the hub for electronic transfers from dozens of other savings accounts, it has made its impression. And despite all the bad customer service stories from Capital One’s credit card division in previous years, none of the bad behavior seems to have leaked to Capital One 360.
I would prefer, however, to keep most of my cash where my investments are. My investments are almost all housed at Vanguard. The investment company offers a money market fund, but over the last few years, the returns haven’t been much better than online savings accounts. In fact, it’s been worse.
The point of the reader’s question seems to be about interest rates. Why stick with Capital One 360 when the rate has been lowered so much? Well, rates everywhere are down. The better options are not better by enough so that it makes too much of a difference. And if the other option is to invest in stocks or real estate rather than keep money in cash, you’re trading liquidity for the chance of income or appreciation, and adding risk on top of that. Savings and investing serve different purposes.
In short, the cash I have currently is almost all in a Capital One 360 account, the continuation of the ING Direct account I’ve had since July 29, 2002. (The Wells Fargo account is a continuation of the one I’ve had since 1993 or so.)
Where do you keep your savings? What’s your favorite savings account today?
If you have more questions for me, contact me now.
Published or updated September 9, 2014.