Best Interest Rate Banks

I put together an FNBO Direct Squidoo Lens that contains some brief FNBO Direct and high yield savings account information that you may find useful.

It’s a work in progress type of project but it’s something that I hope to expand on in the future!

Washington Mutual has a hot new Certificate of Deposit offer - 12 months at 5.00% APY interest rate with no catches, gimmicks, or other shenanigans. This is a 1.25% APY bump from their WaMu high yield checking/savings account and the two can be linked together for easy transfers.

Other details:

• Early withdrawal penalty of 90 days interest
• Open entirely online
• $1,000 minimum deposit

If you’ve ever linked online accounts together, chances are you’re familiar with the nine-digit ABA routing transit number. On a personal check, it’s usually the first in a series of three numbers at the bottom of a check. On a business check, it’s usually the second in a series of three numbers. The three numbers are the same on both, they’re just in a different order.

Personal Check

Business Check

The ABA routing transit number identifies the bank and tells the recipient’s bank where to obtain the funds. The system itself is quite complicated but the numbers are quite easy to decipher. The nine digits are separated into three sections. The first four digits designate the Federal Reserve Routing Symbol, the next four is the ABA Institution Identifier, and the last digit is a checksum digit.

Federal Reserve Routing Symbol

The first four digits are separated into two sections, the first two digits and the second two. US Government checks always begin with 00 whereas digits 01 through 12 designate one of the twelve Federal Reserve Banks. If the transaction is electronic, it’s given a 61 through 72 that follows the same order as below (61 is Boston, 72 is San Francisco).

• 01 - Boston
• 02 - New York
• 03 - Philadelphia
• 04 - Cleveland
• 05 - Richmond
• 06 - Atlanta
• 07 - Chicago
• 08 - St. Louis
• 09 - Minneapolis
• 10 - Kansas City
• 11 - Dallas
• 12 - San Francisco

ABA Institution Identifier

This is a unique four digit identifier for the bank.

Checksum Digit

This digit is used to ensure the numbers are properly formatted. It follows an equation:
(3(d1 + d4 + d7) + 7(d2 + d5 + d8) + 1(d3 + d6 + d9))mod 10 = 0

There you go, that’s how that 9 digit numbers works!

Are you worried about your assets at one of these online banks? If so, let me put you at ease, all of the banks listed on the homepage of this site (and likely anywhere on this site) is covered by FDIC insurance according to the FDIC’s Bank Find tool.

What’s this FDIC insurance? In a nutshell, banks pay for deposit insurance to protect your assets (since they lend out a large percentage of the money you deposit) and that insurance is called FDIC insurance, after the “corporation” that offers it. FDIC stands for Federal Deposit Insurance Corporation.

Your assets at a single financial institution are protected to $100,000 by this insurance. For the most part, you get $100,000 at every institution so if you have an account at FNBO Direct and one at HSBC Direct, you get $100,000 of coverage at each bank.

There are other ways to get additional protection but for most the $100,000 amount per bank is sufficient.

One of the nice things about a brick and mortar bank is that you can always go to a brick and mortar bank no matter what. When IndyMac bank failed and was taken over by the FDIC, you could at least go to an IndyMac branch. Sure the lines were long, the people were miserable, but your money was inside and you could get to it.

Actually, your money was not inside. Your money was in the ether, a series of 1’s and 0’s, and you couldn’t actually touch it unless it was locked inside a safe deposit box. Your money was with all the other money, a line item in an electronic register on the bank’s mainframe computers. It was just as safe as having it on an online savings account.

Your money is no safer at a “regular” bank than an entirely online bank.

The only thing that protects your assets at a bank is FDIC insurance. If the Federal Deposit Insurance Corporation is insuring the funds at your bank, and you can confirm this with the FDIC Bank Find tool, then your assets are protected up to $100,000 no matter what.

This means that you’re making a mistake if you don’t open an account at a bank like FNBO Direct or HSBC Direct because they’re just as safe and they offer much higher interest rates.

I’m pretty comfortable with banking online, linking my accounts together, and doing what would have been considered “crazy” only a few short years ago. The interconnectedness of my online services is so widespread that my bank accounts often see only one or two degrees of separation from one another. This level of comfort helps my financials be more fluid but it does introduce a certain level of risk.

Several years ago, I remember reading reports that Paypal was freezing accounts and withdrawing funds directly from bank accounts in fraud investigations. It was something that spurred me to build what I call an online bank account firewall.

A regular firewall in a home is a flame retardant material that separates two connected homes. In the event of a fire in one home, the firewall would prevent the fire from spreading to the other. They’re standard in rowhomes, townhomes, and duplexes these days. The computer version of the firewall is similar, it keeps the bad stuff out. The financial firewall seeks to achieve the same goal.

If there are some untrusted or somewhat risky accounts out there, simply link them to an empty bank account at ING Direct. I chose them because opening a second account there was trivial and, three years ago, they had the best rates in the high yield savings account world. All you do is create an account and link Paypal to that account.

As funds are transferred into the firewall account, move them to another account immediately. If you need to get funds to PayPal, transfer them into the firewall account first, then initiate the transfer. The account has a $0 balance at all times and so you run no risk of having your funds withdrawn without your knowledge!

ING Direct has updated and increased their CD rates:

Get your CDs! Piping hot CDs!

If you have multiple online accounts, one good trick is to electronically link the two accounts together to facilitate the transfer of funds between them. All you need to do this is each bank’s ABA routing number and your account number to set up the link.

Some banks, like ING Direct, will require that you provide a paper check in order to create the link whereas others, like FNBO Direct and HSBC Direct, don’t require a paper check. So, if you want to link ING Direct to FNBO or HSBC, simply create the link on the FNBO/HSBC side and initiate transfers that way.

Here are the ABA routing numbers for the major online banks:

• FNBO Direct: 104000016
• HSBC Direct: 022000020
• ING Direct: 031176110
• Emigrant Direct: 226070319
• Virtual Bank: 067092200
• E*Trade Bank: 256072691
• WaMu: 322271627

By establishing the links, you give yourself the opportunity to transfer funds easily between accounts as you need them.

If you have a few extra dollars and are considering investing in the stock market but find yourself a little scared, don’t worry. Everyone new to the stock market is always wary of it because it’s such a huge beast. Millions of shares trade hands each day, billions of dollars fly around, and that’s just on the New York Stock Exchange. There’s the NASDAQ, Chicago, and countless other international stock exchanges. When you add in foreign exchange opportunities, options, derivatives, futures… it’ll make your head spin and give you a good reason to hold on for a minute. And that’s OK.

Take your time, there’s no rush, the market will be there once you’ve had an opportunity to read up more about how the markets operate and how you can best protect yourself against disaster. While you learn, put your funds in an online bank and it’ll earn a competitive interest rate that won’t make your retirement, but it won’t break it either.

Some people recommend putting your money in an index fund while you spend time learning, I think that’s a mistake unless you plan on learning for about five years. If the market takes a nosedive, as it did last October, you’ll have to leave your money in there and all your research will be put on hold until it recovers. While that’s not necessarily a bad thing, it’s simply not what you planned to do.

One great place to do this is E*Trade because you can have a bank linked to a brokerage account. While your cash is waiting for a good place to go, it can earn a competitive interest rate and be instantly transferred to your brokerage account if you need it for a trade.

Countrywide is currently offering a 7 month, 4.1% APY Certificate of Deposit, is that worth investing in?

If you have an account at Countrywide and you don’t have to move any assets to take advantage, I think that a 7 month Certificate of Deposit offering 4.1% APY is not a bad idea. You lose very little by taking advantage of it. Even if rates do spike up within the next 7 months (the highest rate at a brand name bank is 3.75% at Washington Mutual) such that they exceed 4.1% APY (which is unlikely), you are only locked in for 7 months.

Otherwise, I’d wait.

Personally, given a choice between a 3.75% APY and flexibility or a 4.1% APY without flexibility, I’ll take the 3.75% APY every time. I prefer the flexibility but the main point here is that the difference isn’t significant enough to warrant the effort. There are also financial considerations as well because you don’t earn interest on funds that are “in transit,” which is really just the banks playing the float because money never actually moves from one bank to another.

If you have to move new funds over to Countrywide, I wouldn’t do it. If you have funds there, by all means snatch up the opportunity.