Best Interest Rate Banks

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.

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.

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!