Where are interest rates headed? Here’s the latest on the top high yield savings accounts in the world of online banking.
The Fed has been cutting the key interest rate in order to get the economy moving in the right direction. Well, that means our safe money, parked in cash accounts, can expect some rate changes; so I’d like to explore and review some updates on our high yield savings accounts at our favorite online banks and financial institutions:
High Yield Savings Account Review and Online Savings Account Options
As it goes, the online banks are acting swiftly. They’ve been cutting their interest rates for their popular high interest savings accounts in line with the Fed’s rate cuts. For instance, ING Direct has cut its rate for its Orange Savings account to .90%, and other banks are now following suit as well (though their rates are better). Here is a list of our favorite online savings accounts, including yield:
- EverBank: The EverBank Yield Pledge Money Market Account is now yielding .91% APY for the first 3 months after account open, and .91% after 3 months. It has no monthly fees but requires a low $1,500 initial deposit.
- Ally Bank: The Ally Bank Online Savings Account is now yielding .89% APY (Updated 1/09/12), has no monthly fees and no minimum balance required.
- FNBO Direct: The FNBO Direct Online Savings Account still sports a reasonable interest rate with a 0.70% APY. That’s still several times higher than the national interest rate average.
- ING Direct: The Electric Orange Account gives us a rate of .20% to 1.10%. Still some decent rates, especially for a combination checking/savings account.
- Aurora Bank: This bank has a range of products available such as the Aurora Bank Savings and Money Market Accounts, Aurora Bank Checking Account as well as a series of Certificates of Deposit with maturity dates ranging from 6 months to 60 months.
- Zions Bank: This bank has several offerings you can check out. Their savings accounts are Zions Savings Account and Zions Money Market Account, and they also have a checking account with a good rate: Zions Checking Account.
- WT Direct: The WTDirect Savings Account now yields a 1.11% APY under certain conditions: for the first 60 days, you’ll earn 1.11% on your money. But after 60 days, if your account is under $10,000, your APY will be changed to 0.50%. It’s one of the few accounts that require a minimum balance: you’ll keep earning 1.11% if you maintain your balance at $10,000 or more.
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E*Trade Financial: The E*Trade Bank Complete Savings Account
returns 0.40% APY, which is several times the national average for rates. Rates were recently lowered, in response to Fed rate cuts.
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HSBC Advance: HSBC’s Online Savings Account
now offers a 1.10% APY.
- Dollar Savings Direct: The Dollar Savings Account is now yielding 1.00% APY, and has no fees. The minimum needed to open an account is $1,000.
- Bank of Internet: The Bank of Internet High Yield Savings Account currently returns - APY, which is one of the higher rates around. This savings account has no fees and no minimum balance requirements.
We’ve often echoed the reminder that if you put your money into any of these accounts, then your money will be guaranteed even if your bank fails, as long as it stays within FDIC limits.
Other Options For Your Cash
There are also other safe options for your cash, such as tax exempt money market funds, certificates of deposit and money market savings accounts. These would be great places to park your short term funds or emergency funds if you’re looking for liquidity at the moment. The online bank accounts we list here are known to be fairly stable and secure, in light of what’s been going on in the banking industry of late.
Tax Exempt Money Market Funds
At any rate, if you do have cash sitting around which you’d like to channel towards something fairly safe that also earns attractive returns, you can also consider additional options such as money market funds from some solid financial institutions such as Fidelity or Vanguard.
Though regular and tax exempt money market funds are offering relatively great returns, your money here isn’t guaranteed by the FDIC; thus, you’ve got to live with a minuscule amount of risk when you’re in such a fund — a risk that for many, may appear psychologically greater than usual. For the record, I’m willing to take that risk when you’re talking about a financial stalwart like Vanguard, which carries the lowest cost funds in the investing universe. But mind you, these yields are subject to change and may soon shift as well, in response to any Fed interest rate cuts.
No Certificates of Deposit For Me
I have considered CD’s too, but they’re too illiquid for me right now, especially since I want access to my bucks while I proceed with dollar cost averaging into this sinking equity market. It’s becoming harder to resist the extra cheap stock shares and mutual funds.
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{ 33 comments… read them below or add one }
I remember seeing ING rate at 4.75% a few years ago. It seems that this period is over. If the economy keeps going down like this, savings account won’t become much than a transaction account with limited number of transactions 😉
The moves made by these online banks are critical for them to stay in business. Cutting the interest rate has to be done because their profit margins are shrinking. People that don’t know too much about investing might take their money out of these saving accounts because they believe their money is safe. This is a very bad decision because it could affect your retirement savings. My opinion is to keep your money in these savings accounts because the economy is in a temporally decline and will bounce back over time.
I found that my ex-WAMU now Chase savings account dropped from a 4% APY to 3% APY recently. I’m not sure exactly when it dropped, I just know that it did.
I really hope that Chase keeps this online savings account open because their savings accounts don’t seem very good. Their regular account has a 0.1% APY and their Savings Plus account has a 1.95 APY if you have over $100,000 in the account. That is just terrible.
At some level, it would make sense to not lower interest rates. This seems like a great way to raise the deposit base in order meet capital requirements in times like these. Then again, if you’re getting a truckload of free money from the Fed, maybe that’s good enough.
I have an ING savings account here in Australia and Im getting over 6% but then again our house loan rates are a lot higher.
I’m surprised they are giving as much as this considering the market. Maybe it’s better to put your savings under the mattress for a while.
I think this is a great time to invest in the stock markets. There are a lot of stocks that are going really cheap and someone who starts buying now is definitely going to benefit over the longer run.
If the economy keeps going in this direction, savings accounts won’t be much of an issue. Most of them will be drained.
I don’t agree that now is a good time to sell stocks. If you already took the pain, why sell at the bottom? That is, historically, what everday investors do, and they, historically, miss out on returns when the market recovers. I’m not saying we are definitely at a bottom, but we are closer to the bottom than the top.
@Sentient Money,
I agree with you completely on that: “closer to the bottom than the top”. I’ve been getting calls from concerned family about the losses they’ve incurred in their retirement funds. But I tell them — “hey you’re 38, you’ve got a ways to go with that retirement fund.” If they sell now, and miss the upswing, they’ll be very frustrated!
I agree completely with Sentient Money. Especially if you have a retirement account that is invested in the market and you don’t retire for another 10 – 20 years. I believe it to be wise to wait until a market recovery. Don’t panic at or near the bottom.
Hey,
Can i ask a question?
Assuming equal risks, is it better to buy a higher yielding taxable or a lower yielding tax free money market fund?
@Renee,
It depends on your tax bracket. The higher your tax bracket, the better it is to go with the tax exempt money market fund.
If you think about it, you’ll have to pay a portion of the earnings you accumulate in a taxable fund. So if it’s returning 5% a year, your real rate may be more like 4% a year as you pay off 1% in taxes (this is just an example). But the higher your taxes, that real rate may be lower — 3.5% maybe? If so, then a tax exempt fund that returns 3.75% may be a better deal for you.
Here’s a simple taxable-equivalent yield calculator to help you make that determination.
I have an ING and HSBC account. ING is a pain for log in and I cannot withdraw money from a local (physical) bank; I have to maintain another bank account for this purpose. HSBC has local branches so it works best for me. The interest rates are getting so low that it does not make much money. I remember how HSBC used to pay 5% or more when I first set up my account; now the interest rates never seem to stop falling.
ING and HSBC accounts are kind of on the annoying side sometimes. I seem to not be able to withdraw money from a physical bank.
If the economy keeps going in this direction, savings accounts won’t be much of an issue. Most of them will be drained. on top of this it is one of the worst times for the stock market
bad economy : if things prevail, savings accounts won’t be much of an issue. Most of them will be drained.
If you really want to put your hard-earned savings into online banking then do research. Find out what bank offers the best interest rate at the lowest tax rate. Though economy is going bad, there would still be banks that are stable. Just read their terms and conditions and ask questions.
It’s pretty sad that anything as high as 2% is “high yield”. I’ve only begun saving money (am in my late 40’s) only 10 years ago. Before that, we served over 21 years in the US Air Force. Anyone knows that enlisted in the service move a lot and you live pretty much paycheck to paycheck. All the money we ever saved there went to moving all the time or visiting family as we were always so far away. So we never could afford to save.
When my hubby retired, we bought a house in a lower income area (not bad but not where would saw all the others living beyond their means were living – and where I was dreaming about) so we’d not live beyond OUR means.
So we began our first retirement accounts in our mid/late 30’s and now we’ll never have enough to retire. So when Obama took office he promised us everything…
I was excited till I see the interest rates on savings have slowed to nothing (and we are TAXED on all our profits right? They take a good 28% of that 1.80% on my high interest account)… so basicall, I am getting really less than a percent interest. NOTHING. We earn over 100k a year (barely) but we don’t qualify for the college incentives as I already sent my kid in when it was at it’s high interest rates (over 8%) and he’s done now. I don’t qualify for “first time” homeowners as this was our first home… and we can’t afford the car buying incentives because we need to save for retirement. So our 10 and 11 year old cars will become much older…. and saving will take LONGER as the interest is so low and we lost 50% of our 401k and almost every dollar we had in our Ameritrade account (owning just three stocks now; two of which are Ford and GM).
So when we thought we’d get a stimulus tax break, I was excited. Even if it was 13 a week. Only to yesterday learning that’s not really true. His company says he makes over 75k and will not qualify for it. Maybe we can claim it next year when we file for 2009 (filing joint) I don’t know, but this year, we get NOTHING.
So we got nothing, nada, zilch from Obama and his stimulus. And we are not rich…
and we wonder how long the interest on savings will remain below 5%. Since we’ve been saving, the most we’ve personally seen is 4.99 in over 10 years!
Obama needs to stop taxing our savings and the savings rates need to increase equal to the lowering of interst on buying. It’s not been equal in my opinion for a long, long time.
@Dahoov2
I share your concerns. We are in a very very tough saving and investing environment, no thanks to the excesses of the past several years (or decade). Credit is tight, the stock market is in the doghouse, and our savings are earning low rates.
As Obama has said in his numerous speeches — it’s going to take a while for things to improve and all we can do is wait and be patient, but this too shall pass. I personally hold out hope that things will get better by 2010, as the economists are predicting.
For now, I am actually continuing my investment program, and hoping that eventually, my investments at these low prices in the stock market will pay off well.
Best of luck to us all!
what is the interest rate on the savings account and the cd?
Have you considered SmartyPig ( smartypig.com ) ?
As of today, they are offering a 3.05% APY…
You can get up to 5.01% APY on checking accounts.
Well known financial companies like American Express are known for their credit cards but they actually also have a banking arm. As one of their customers, I thought to check into their savings accounts. I like that they have name recognition. So American Express Bank has these types of accounts for your savings:
The Online Savings Account — The High Yield Savings Account from American Express is an online savings account with interest compounded daily. This account does not require a minimum balance and does not incur any fees. You’re fully FDIC insured with 24/7 access. You’ll be able to access your money through the standard methods of electronic transfer and check writing.
They also have certificates of deposit — The American Express Bank also offers a variety of certificates of deposit of varying terms. Just like with the savings account, they are FDIC insured, are easy to access and don’t charge a monthly fee. Their terms range from 3 months to 5 years (60 months). You’ll have to check their rates since they often get updated.
Maybe something to think about…?
I have seen several good reviews of American Express and their savings/CD accounts. I do have a American Express card and have been very pleased with their customer service in that area. American Express has always been known for very good customer service.
I currenly bank at ING and have for awhile. My savings account there pays 1.1%. At present it is hard to consider moving for 2 tenths of 1 percent, when both pay under 1.5%!
@Joey, I just signed up for Amex high yield savings acct and I must tell you it was a very simple and easy, no hassle process. I know I am going to love this! Hopefully they will come out with a debit card that will attach to their savings.
I’ve always loved AmEx for their rewards card…I get a decent amount of money back each year, but I never really considered their savings plans. I’ll have to check that out soon.
I can’t believe how low US high interest savings accounts are compared to Aussie (1 and a bit% vs 6% plus) accounts. Especially with the AU$ almost at parity with the US$.
This is good i want to know more.
Interesting point from Joey. Interesting that credit card companies are getting into the savings business. You can probably count on every big financial institution to start looking into other areas of expansion, if they haven’t gotten in there already. As far as American Express? They’ve got pretty good products in general, and I would expect that quality to extend to their savings funds.
These are good banks for saving accounts as they have been around a long time, are successful and are known around the world. I’m more comfortable putting my money in the bigger banks for my savings.
Online Savings accounts without a minimum balance are an attractive deal. There are good opportunities here for online savvy savers to save their money with confidence.
New online savings accounts have been popping up recently. I’ve written about Sallie Mae coming up with their own line of savings vehicles. But interest rates these days are hovering at roughly the same levels, regardless of where you look, so if you’re going to open an account, it’s usually with institutions you trust, that have a good reputation and whom you are familiar with.