Best Interest Rate Banks

When it comes to your credit, opening a new bank account may or may not affect your credit. Oftentimes it depends on the bank and their own internal processes but I’ll explain why there’s ambiguity and then which banks will ding you and which won’t.

There are two types of inquiries - hard inquiries and soft inquiries. Sometimes places will call them “pulls” or “requests” but they mean the same thing. Inquiries are when individuals or organizations request your credit history. Typically, the hard inquiries are ones where the information will be used for lending decisions, such as credit cards and mortgages. Soft inquiries are not use for lending decisions and often used for informational purposes such as confirming your identity on applications.

Unfortunately, some banks will make a hard inquiry when they really should have made a soft inquiry. The only way to know is by customer reports. Savvy customers who keep an eye on their credit score will often report whether inquiries are hard or soft. The most comprehensive and up to date list that I’m aware of is via Fatwallet.

As for online banks, according to the list none of the banks listed on the best interest rate banks homepage will do a hard pull on savings accounts. The banks that offer money market or checking accounts will often do a hard pull to determine how much overdraft protection to offer (ING Direct does this). So in most cases, opening a savings account will not affect your score.

One question I’m constantly asked by readers is how online banks like FNBO Direct and ING Direct can offer such high interest rates compared to your big name brick and mortar bank. The answer is actually simpler than you think. The reason why they can offer such good rates is because they don’t have to pay for the things a regular bank has to pay for.

Let’s list all the major things both online banks and brick and mortar banks have to pay for:

• Website - including online banking
• Call centers - to field customer calls
• Mailers - statements, offers, etc.
• Marketing & advertising

Now think of the things that only brick and mortar banks have to pay for:

• Branch locations - leases, taxes, tellers, managers
• ATM locations

While each one only gets a bullet, one of the most expensive items on either list is branch location. Think about how many branches each of those majors banks has. Tens of thousands. Bank of America has thousands of branches and over 11,000 ATMs. In addition to paying for the branches and ATMs themselves, those banks have to pay for the people it takes to support them. Tellers and managers and ATM technicians aren’t cheap. They need electricity, heat, water, health care, and so many other things.

Online banks won’t give you the personal relationship that a bank will. That’s for certain, but you don’t go to online banks for great relationships, you go for great rates.

If you haven’t been watching the news, you may have heard that the 18th and 19th bank failure happened last weekend. Security Pacific Bank, Los Angeles, California, with approximately $561.1 million in total assets and $450.1 million in total deposits, and Franklin Bank, SSB, Houston, Texas, with approximately $5.1 billion in total assets and $3.7 billion in total deposits, were both closed. In both cases, all deposits were assumed by another bank, no one lost any money, and everything continued on as usual.

When IndyMac collapsed in historically gargantuan fashion, the bank was operating as IndyMac Federal that next Monday. The reality is that bank failures, to many bank consumers, simply means the nameplate on the bank’s door has changed. With FDIC insurance up to $250,000 per account holder per institution until December 2009, there really isn’t much you have to be worried about. In the 19 failures this year, each had gone seamlessly. Some people lost money if their deposits exceeded the $100,000 insurance limit but otherwise everything worked out great.

However, people are still concerned. If you count yourself as someone who gets worried about such things, there are ways for you to pick a safer bank. First, keep up on the news. These smaller regional banks can go under without any warning but the larger ones won’t. Everyone knew about the woes of WaMu long before they were purchased.

Second, you can review the ratings by BankRate and BauerFinancial. The ratings are updated quarterly so things may change in the interim but it’s better than nothing.

Finally, ensure you have less than the FDIC insurance limit of $250,000. There really is no reason to keep more than that especially when opening new accounts is so easy. Consider one of these high yield savings accounts for your savings if you find yourself over the limit.