Best Interest Rate Banks

This week the Federal Reserve, after their FOMC meeting, announced that they would be raising the federal funds target rate from a 0.00%-0.25% to 0.25%, which essentially raising the federal funds rate. IAt a time when interest rates have been falling very very quickly, with some banks seeing their rates fall several times last month, this cold be a sign that interest rates will slow their fall. While I still reiterate the recommendation that you try to lock in rates with CDs, this is certainly a good sign for savers out there looking to get something for their good behavior.

In other Fed related news, the FOMC also said they’d be buying $750 billion more agency mortgage-backed securities, which would bring the total purchases up to $1.25 trillion. It would also buy up $300 billion in longer-term Treasuries to help credit markets and expand the TALF (Term Asset Backed SEcurities Loan Facility) to include other assets.

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.