Best Interest Rate Banks

On Monday, Citigroup agreed to purchase the banking operations of Wachovia for $2.1 billion. Citigroup will now have more than 4300 US branches and $600 billion in deposits - putting it with the two other large banking giants Bank of America and JPMorgan Chase (who took over Washington Mutual recently). In the deal, Citigroup will be assuming $53 billion worth of debt and absorb up to $42 billion of losses from Wachovia’s $312 billion loan portfolio with the FDIC covering any remaining losses.

Citigroup to buy Wachovia banking operations [Associated Press]

After the mostly overlooked yet spectacular collapse of Washington Mutual (its shareholders certainly knew she tanked), it appears Wachovia, which was similarly capitalized, is on the trading block with two potential partners. Reportedly Citigroup Inc. and Wells Fargo & Co. are bidding to take over Wachovia with Spain’s Banco Santander SA (according to the Wall Street Journal anyway) as a possible third bidder in the process.

Wachovia’s stock price fell 27% on Friday and then another 15% in after hours trading.

Wachovia’s current problems stem largely from its acquisition of mortgage lender Golden West Financial Corp. in 2006 for roughly $25 billion at the height of the nation’s housing boom. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of Pick-A-Payment loans, Golden West’s specialty, which let borrowers skip some payments

But like many other banks, Wachovia stands to benefit from the passage of the government’s proposed $700 billion rescue plan — the details of which were emerging from Washington on Sunday.

Last night, the Office of Thrift Supervision shut down Washington Mutual and the FDIC was named the receiver. Immediately afterwards, the FDIC facilitated a sale of WaMu to JPMorgan Chase. All depositors are protected and no money comes out of the coffers of the FDIC’s insurance fund - it’s a win, win for everyone. As of right now, JPMorgan Chase has said they’re going to keep everything the same during the transition.

The FDIC has come out with an easy to use tool called EDIE the Estimator to help you calculate how much FDIC insurance coverage you have.

Through EDIE the Estimator, you “can calculate your FDIC insurance coverage for each FDIC-insured bank where you have deposit accounts. EDIE lets you know in a printable report for each bank whether your deposits are within or exceed coverage limits.”

Before you start, have a list of all your accounts at FDIC-insured banks, current balances, names of all owners and beneficiaries.

Many of your bills can be paid annually, whether it’s your renters/homeowners insurance or your property taxes, or your trash collection fee or something else; some of those services will give you a discount if you pay them in a lump sum rather than over every month or quarter or six months. For example, my homeowners association fee will bill me every year and give me a 5% discount if I pay in one lump sum rather than two half-year payments. In some cases, the recipient is hoping to earn a little extra interest in your money but oftentimes they are simply looking to reduce their administrative overhead. Either way, you can save money simply by saving up the funds to make one lump sum payment.

The easiest way to do this is to set up recurring monthly transfers from your main checking account, where your income is deposited, to a savings account you have earmarked for this purpose. It’s simple to open up additional accounts at ING Direct, you could even name it “Annual HOA fee” and simply transfers $50 each month (in our case), then transfer that out whenever payment needs to be made.

If it’s not as important for you to have separately named accounts, I recommend FNBO Direct instead as it has a higher interest rate at 3.50% APY.

I was messing around in my ING Direct account today, opening an 18-month CD at 4.50% APY, when I saw that ING has a rollover bonus on their Certificates of Deposit. If you set your CD to non-renewing, they pop up a link next to the CD as it nears maturity with an offer of a Rollover Bonus.

The Rollover Bonus is 0.10% above the listed rate. So with the current Orange CD rates where they are, you’ll get 4.10% APY for the 12-month CD and 4.60% APY for the 18-month CD.

I’ve heard that some other banks offer this as well but this is the first time I’d seen it.

ING Direct just upped the interest rate on their 18-month CD to a very competitive 4.50% APY. If you look at the ING Direct CD rates, you’ll notice that only the 18-month term CD has been changed.

ING Direct’s Orange Savings Account hasn’t had a high interest rate in quite some time so it’s a welcome change to see their CDs starting to lead the way compared to other banks.

Some notes about their CDs - there is no minimum and an early withdrawal penalty of 6 months (this is true for CDs above 12 months).

HSBC Direct announced today that their online savings account interest rate would be falling from 3.50% APY to 3.25% APY. While this isn’t enough to cause anyone to withdraw their funds to put it in another bank, it’s enough to change where people will put their next dollar. FNBO Direct’s rate is still 3.50% APY and WaMu has a 3.75% APY rate, though recent concerns about their liquidity has damped people’s enthusiasm for them.

On the flip side, if you want a good rate from your funds at HSBC Direct, they do offer a 6 month CD now for 3.75% APY.

A couple months ago, Washington Mutual offered 5.00% APY on their year-long certificates of deposit. It was a rate that was very very juicy considering it trumped many of the rates offered by other banks. Bankrate’s own overnight CD rate monitor currently says 12-month CDs are offering 3.69% APY, so WaMu is beating that by a full percent. ING Direct’s rate is 4.00% and HSBC Direct’s rates aren’t even close in the 12-month CD, so WaMu’s rate is certainly something to consider if you’re looking for some short term interest.

You don’t have to use any of WaMu’s other services, you can just opt for the CD and manage it entirely online (you have to manage it online, you can’t visit a branch to open). The CD has a minimum of $1,000 and no fees according to their fee sheet.

One option that some are saying is that you should open their checking/savings combination so that you can take advantage of the 3.75% APY if you ever cash out the CD and need to figure out what you want to do. I will be taking this route because the 3.75% is much higher than my current checking account rate of 0.00%. There’s certainly no cost to opening (the savings account will charge fees if you have less than $300 in the account) so you might as well take advantage.

I mentioned in a post last week that online bank sites can sometimes go down without any warning and that one way to mitigate that risk is to establish bank transfer links in both directions. Another way to mitigate this risk is to simply open two accounts and spread your assets across both of them.

Right now, Washington Mutual is offering 3.75% APY, FNBO Direct and HSBC Direct are offering 3.50% APY; that’s three banks offering 3.50% to 3.75% APY for total coverage of $300,000 FDIC insurance. If you have over $300,000 in assets you are putting in savings accounts, you should talk to a financial advisor. Otherwise, you’re like us and can safely spread it across those three banks and mitigate the risk that any one of those accounts could become inaccessible without giving much interest.

HSBC Direct recently went down for the count for a few days because of technical issues, I hardly noticed because I had my assets spread across multiple banks such that in a dire situation I can still access my cash. I also happen to have external links to my HSBC Direct account and could initiate a transfer out if necessary (the bank was fine, online access was just shaken up).

So, if you’re wary about online banks, diversify this small risk by spreading your money across different accounts.