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.

What a crazy last few weeks! Almost every major online bank has dropped their rates twice in the last two weeks. That’s right, twice! I won’t go into the exact chronology of who dropped to what rate and then dropped to what rate, but suffice it to say, your best bets right now are to lock in a good certificate of deposit rate and then try to wait things out. Forget the money markets, forget trying to get a good rate with high yield savings accounts, to ensure a good rate you’ll have to go with a certificate of deposit.

The damage, as it now stands is:

• Dollar Savings Direct - 3.50% APY
• FNBO Direct - 2.60% APY
• EverBank - 3.51% APY Promotion Rate
• WTDirect - 2.81% APY
• E*Trade - 2.50% APY
• ING Direct - 2.20% APY

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.

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.

Sharebuilder is a dollar cost averaging brokerage firm that was recently acquired by high yield savings account stalwart ING Direct. Anyway, Sharebuilder lets you buy and hold shares of stock very cheaply, $4 a scheduled trade, and was one of the first in the discount brokerage field to really make it possible for the small investor to invest small amounts in whatever they liked. $4 was cheap compared to the $20 some places charged. Since then a lot of other brokers have appeared on the scene like Zecco with free trades and TradeKing with $4.95 trades, but Sharebuilder still holds a special place in many people’s hearts.

Another thing they offer are special signup promotions through the use of codes, something very few other brokers offer. All you’ll need to do is click through the link, enter in the promotion code when asked, make one trade, and you’ll be awarded the money.

Apply today!

When it comes to your credit, opening a new bank account may or may not affect your credit. Oftentimes it depends on the bank and their own internal processes but I’ll explain why there’s ambiguity and then which banks will ding you and which won’t.

There are two types of inquiries - hard inquiries and soft inquiries. Sometimes places will call them “pulls” or “requests” but they mean the same thing. Inquiries are when individuals or organizations request your credit history. Typically, the hard inquiries are ones where the information will be used for lending decisions, such as credit cards and mortgages. Soft inquiries are not use for lending decisions and often used for informational purposes such as confirming your identity on applications.

Unfortunately, some banks will make a hard inquiry when they really should have made a soft inquiry. The only way to know is by customer reports. Savvy customers who keep an eye on their credit score will often report whether inquiries are hard or soft. The most comprehensive and up to date list that I’m aware of is via Fatwallet.

As for online banks, according to the list none of the banks listed on the best interest rate banks homepage will do a hard pull on savings accounts. The banks that offer money market or checking accounts will often do a hard pull to determine how much overdraft protection to offer (ING Direct does this). So in most cases, opening a savings account will not affect your score.

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.

Many of your bills can be paid annually, whether it’s your renters/homeowners insurance or your property taxes, or your trash collection fee or something else; some of those services will give you a discount if you pay them in a lump sum rather than over every month or quarter or six months. For example, my homeowners association fee will bill me every year and give me a 5% discount if I pay in one lump sum rather than two half-year payments. In some cases, the recipient is hoping to earn a little extra interest in your money but oftentimes they are simply looking to reduce their administrative overhead. Either way, you can save money simply by saving up the funds to make one lump sum payment.

The easiest way to do this is to set up recurring monthly transfers from your main checking account, where your income is deposited, to a savings account you have earmarked for this purpose. It’s simple to open up additional accounts at ING Direct, you could even name it “Annual HOA fee” and simply transfers $50 each month (in our case), then transfer that out whenever payment needs to be made.

If it’s not as important for you to have separately named accounts, I recommend FNBO Direct instead as it has a higher interest rate at 3.50% APY.

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).