Best Interest Rate Banks

With much of the bank failure panic behind us, one of the best lessons throughout the failures was that business typically continues as usual. In all the carnage, with brick and mortar banks like IndyMac and Washington Mutual (among others) failing, there wasn’t a single major online bank failure. For that, you’d have to go back to 2007 when NetBank went under in the fall/winter.

NetBank, at the time, was the largest failure in 14 years (soon eclipsed this year by many others) but those who were FDIC insured escaped unscathed. The bank was closed on a Friday and re-opened on a Monday, with ING Direct at the helm. For the customers who had under the FDIC limit of $100,000 (now $250,000), there was little change. For those with amounts above, they had to do a little extra work to recoup their funds.

In the end, an online bank failure is just like a regular bank failure - everything is fine by Monday.

If you’ve checked out the front page of Best Interest Rate Banks lately, you’ve seen the latest rates as of early January 2009 and they are ugly.

The highest rates barely peek over 3.00% and there isn’t much we can do about it. The best thing you can do is lock in a good CD rate at whatever bank you’re at and wait for better times.

One bank you might want to consider is Dollar Savings Direct with their 4.00% rate, which will likely fall very soon.

If you have the means, you might consider putting a little in the market or even in into some municipals bonds, which are offering slightly higher yields.

Bank rates will be low, and going lower, for the foreseeable future.

If your bank participates in this program, and many of the major banks do, then all of your money in non-interest bearing deposit transaction accounts is FDIC insured… with no limit!

When the FDIC announced the new deposit insurance limits last year, they included a provision called the Transaction Account Guarantee Program that insured the entirety of your balance in a non-interest bearing deposit transaction account. That’s right, through this program, you have unlimited protection in non-interest bearing deposit transaction accounts. I didn’t know about this program until I saw a notice in my local bank! The program was a trial that lasted for a month, from October 14th - November 14th 2008 and then banks had to elect coverage (they pay for the additional insurance through fees).

Non-interest bearing deposit transaction accounts are typically checking accounts and they do not earn any interest. Your standard checking account will usually apply but you should call up your bank to confirm (they may not have joined the program). The FDIC also included two other types of accounts under this protection. The first is what’s known as an Interest on Lawyers Trust Accounts (IOLTAs), which is an interest-bearing checking account for funds held in trust or escrow on behalf of a third party. The second account is they covered was an interest bearing checking account with a rate of at most 0.50%.

The coverage is separate from the FDIC coverage. This means that if you have a checking and a savings account at a bank participating in this program, your checking has unlimited coverage and your savings (and everything else) is covered up to $250,000 as normal.

This program is set to expire along with the increased coverage limits (December 31 2010) so we won’t know what will happen afterwards.