Best Interest Rate Banks

In the world of bank deposit accounts, there is a relationship between the liquidity of an account and the interest rate your deposits earn. The interest rate is known as an annual percentage yield, or APY, and the less flexible the account, the higher the interest rate. Certificates of deposit, one of the most illiquid deposit accounts at a bank, often has the highest interest rate APY because of how inflexible it is. With a certificate of deposit, you are locking in an interest rate and will be penalized if you need to withdraw your funds before the CD matures. So where do money market accounts live in the spectrum of interest rate and liquidity? They are somewhere between a checking and a savings account.

When I talk about the spectrum of interest rate and liquidity, I’m referring to the flexibility I mentioned with the certificate of deposit. At one end you have the most liquid accounts with the worst interest rates, checking accounts, and at the other end you have the least liquid and the best interest rates, certificates of deposit.

A money market account has some of the features of a checking account and some of the features of savings accounts. They offer high yield savings account level interest rates while still letting you write checks and access an ATM, which is pretty much the best of both worlds. There are limitations though, otherwise checking accounts wouldn’t exist because everyone would use money market accounts. Many money market accounts are limited to 6 ACH electronic transfer a month and tiered interest rates. The tiered interest rates means that you need high balances to get one of the better rates out there.

The best money market account rates remain very competitive with savings account rates, so it’s usually a good bet that, as a product, it has some appeal for you if you use high yield savings accounts.

Where can you open a money market account? You can go with your local bank where you already do business or you can find one of the top MMA rates list like I referenced above and look for someone there. Remember to read the terms and conditions because they will differ from bank to bank.

The Fed dropped interest rates from 1% to 0.00% - 0.25% last week as a Christmas gift to the economy and the ones who will suffer are savers like you and I. Already, the top banks with high yield interest rates are dropping their savings account rates with great ferocity. FNBO Direct, which had sported a reasonably strong 3.25% APY rate, dropped their mark to 2.80%, which only puts it a hair higher than ING Direct with a 2.75% rate. Other than that, WTDirect still soldiers on with a 3.06% APY rate on balances above $10,000 but everyone else has fallen. The single surprise in all of this has been Dollar Savings Direct, a brother bank to Emigrant Direct, still offering a mind-boggling 4.00% APY when its peers are lagging in the low 3% range.

The one move I would do right now is to get myself locked into some CDs. The best CD rates are in the mid 3% and low 4% range for CD terms of less than 18 months. Lock in some short term rates so that you can be assured that your savings don’t languish. The only risk you have is that inflation skyrockets with all the Fed moves and if that happens, you can pull your money out and put them into something better. However, the smart move right now is to lock in those rates before they sink any further.

As both banks decreased their high yield savings rates recently, ING Direct to 2.75% APY and FNBO Direct to 3.25% APY, both increased their CD rates.

ING Direct CD Rates

It looks like we’re in the world of dropping interest rates as the Fed looks to combat a recession, banks are anticipating that they’ll cut rates in the next meeting (after the emergency cut just a few short weeks ago). Today, two banks lowered their rates by a quarter of a percent.

HSBC Direct lowered the yield on their high yield savings account to 2.60% APY and FNBO Direct dropped their savings account to 3.25% APY (from 3.50%). If you’re looking for dependable guaranteed rates, look towards CDs. ING Direct just increased some of their CD rates. I keep an updated list of the best 6, 12, and 18 month CDs.

If you’re looking for an updated list of the best CD rates, Blueprint for Financial Prosperity is keeping tabs on the rates for all the major banks offering a high yield on a term of less than 18 months. Current leader is a bank I’ve never heard of, Dime Direct, with Washington Mutual, or what’s left, taking 2nd with their 5.00% APY online CD. (the lowest rate on the list is E*Trade with their 3.10% APY 12-month CD). The list includes the bank, whether it has an associated high yield savings account, the last updated rate date, the rate, the term, and the minimum deposit. The list currently tracks thirteen banks.

Here’s the full list of Blueprint’s best CD rates.

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).

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.

Less than two weeks after their last rate increase, ING Direct has updated and increased their CD rates once again, with their 12-month Certificate of Deposit going from 3.70% APY to 4.00% APY:

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