Best Interest Rate Banks

With the economic woes our nation is facing, politicians would like you to spend your money faster than you can make it. They’d love it if you could max out your credit cards and put more consumer spending back into the country, but thankfully you’re smarter than that, especially if you’re reading an article on high interest savings accounts. High interest savings accounts are savings products offered by online banks that give you a much better interest rate than your standard bank. Check out the savings rate of your current brick and mortar branch and let me know what the rate is, chances are it’s 1% or much lower. It’s not unreasonable for a brick and mortar bank to offer you half a percent or even lower! If you go with a high interest savings account, you could be earning around 3% - three times even the highest rate.

Where do you find these rates? Online banks. I list the best interest rate banks on the homepage of this site, but you probably want to learn a little more about each of the banks right? No problem.

FNBO Direct: They are the online bank of First National Bank of Omaha, which first opened in 1857 and has been covered by FDIC insurance ever since its inception. FNBO Direct’s FDIC certificate is #5452 and they have four stars from Bankrate’s Safe & Sound rankings.

Dollar Savings Direct: Emigrant Bank has two online banks - Emigrant Direct and Dollar Savings Direct. Dollar Savings Direct has a higher yield, a $1000 minimum to open, and is better than Emigrant Direct in almost every way. They are covered under certificate #12054.

ING Direct: ING Direct was one of the first online banks available, known for their ubiquitous orange ball and their funny name. They are the online bank of ING Group, which is a huge international financial service company headquartered in Amsterdam, Netherlands. Their domestically headquartered in Wilmington, Delaware, and were given four stars from Bankrate’s Safe & Sound rankings.

E*Trade Bank: E*Trade Bank is affiliate with E*Trade the stock broker and if you open an E*Trade Bank account you can link it up with your E*Trade trading account, which is a good or a bad thing! They are covered under FDIC certificate #30746 and were awarded Money Magazine Best of the Breed in 2007.

HSBC Direct: HSBC Direct is the online banking arm of Hongkong and Shanghai Banking Corporation, a huge international banking conglomerate. They are covered under FDIC certificate #57890 and are headquartered in McLean, Virginia.

In addition to the high interest savings accounts, many online banks offer very competitive certificate of deposit rates. By opening up a CD, you lock in an interest rate for a specified period of time. You give up some flexibility but when minimum balances are so low, it’s easy to open a small CD just to save a little extra.

If I had to pick my top three savings accounts right this very minute, they would be, this very order:

1. FNBO Direct
2. Dollar Savings Direct
3. E*Trade

Some might be surprised at the order of the list because the top rated bank, FNBO Direct, actually has the lowest interest rate of the bunch (3.25% APY vs. 4.00% for Dollar Savings Direct and 3.30% APY for E*Trade). Let me explain that one first. FNBO Direct has my top spot because it allows up to three external links, which means I can transfer directly from another high yield savings accounts. I can do online bank to online bank transfers, three of them no less, which is something not offered by the other two. Dollar Savings Direct takes second on the strength of their 4.00% APY rate and E*Trade comes in third because I think the brokerage account link is a crucial offering (even though you can get $4.95 trades from TradeKing, E*Trade charges $9.95).

FNBO Direct

FNBO Direct takes the top spot, as mentioned earlier, because they offer those three external links. They also offer a two-year 4.26% APY CD that is one of the best out there. 3.25% APY isn’t the top rate, but a competitive one, and the interface for FNBO is clean, crisp, and responsive. FNBO Direct is the online banking arm of First National Bank of Omaha, FDIC Certificate 5452, a bank that has been out of the news but in business since 1857.

Dollar Savings Direct

Dollar Savings Direct is the same as Emigrant Direct, except it has a much higher interest rate - a whopping 4.00% APY. It’s probably tops among the well known online banks. The only downside with Dollar Savings Direct is that you can only link up one account to start (likely to be your checking account) and then all future additions must be done with a ton of paperwork. Yep, it’s a pain, which is why it gets the #2 spot.

E*Trade

E*trade takes the #3 spot of my top savings accounts because the 3.30% APY rate coupled with a easy as cake to open brokerage account gives a flexibility no other online banks offers, the ability to trade in the stock market. One negative about E*Trade is that the trades are quite expensive, at $9.95 it’s nearly twice as expensive as TradeKing and their $4.95 trades (though funding a TradeKing account can be a bit of a pain at times).

There you have it my, top 3 picks for the top savings account in all the land.

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.

If you have multiple online accounts, one good trick is to electronically link the two accounts together to facilitate the transfer of funds between them. All you need to do this is each bank’s ABA routing number and your account number to set up the link.

Some banks, like ING Direct, will require that you provide a paper check in order to create the link whereas others, like FNBO Direct and HSBC Direct, don’t require a paper check. So, if you want to link ING Direct to FNBO or HSBC, simply create the link on the FNBO/HSBC side and initiate transfers that way.

Here are the ABA routing numbers for the major online banks:

• FNBO Direct: 104000016
• HSBC Direct: 022000020
• ING Direct: 031176110
• Emigrant Direct: 226070319
• Virtual Bank: 067092200
• E*Trade Bank: 256072691
• WaMu: 322271627

By establishing the links, you give yourself the opportunity to transfer funds easily between accounts as you need them.

If you have a few extra dollars and are considering investing in the stock market but find yourself a little scared, don’t worry. Everyone new to the stock market is always wary of it because it’s such a huge beast. Millions of shares trade hands each day, billions of dollars fly around, and that’s just on the New York Stock Exchange. There’s the NASDAQ, Chicago, and countless other international stock exchanges. When you add in foreign exchange opportunities, options, derivatives, futures… it’ll make your head spin and give you a good reason to hold on for a minute. And that’s OK.

Take your time, there’s no rush, the market will be there once you’ve had an opportunity to read up more about how the markets operate and how you can best protect yourself against disaster. While you learn, put your funds in an online bank and it’ll earn a competitive interest rate that won’t make your retirement, but it won’t break it either.

Some people recommend putting your money in an index fund while you spend time learning, I think that’s a mistake unless you plan on learning for about five years. If the market takes a nosedive, as it did last October, you’ll have to leave your money in there and all your research will be put on hold until it recovers. While that’s not necessarily a bad thing, it’s simply not what you planned to do.

One great place to do this is E*Trade because you can have a bank linked to a brokerage account. While your cash is waiting for a good place to go, it can earn a competitive interest rate and be instantly transferred to your brokerage account if you need it for a trade.

The Federal Reserve is likely to increase interest rates in these next few FOMC meetings and that means that high yield online savings banks will begin increasing their rates as well. Already we’ve seen E*Trade increase their yield to 3.01%, inching closer to the bar that HSBC Direct has set at 2.60%. As we get closer to these future meetings, banks will start raising rates by a few tenths of a percent to entice you to move your savings from one bank to another.

Unless the rate difference is at least a 0.75% to a full 1%, I wouldn’t bother. On a $10,000 balance, half a percent is $50 if the dollars were transferred instantly. Take away taxes and you’re looking at even less. You’ll want to wait until it’s more, like $75 or $100 before you want to make the move because you lose interest when your money is between banks.

However, since the cost of opening a new account is near zero, you might want to consider opening an account at the highest current yield, 3.50% at HSBC Direct, and just move all new savings into that account for the time being.