Best Interest Rate Banks

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.

After the mostly overlooked yet spectacular collapse of Washington Mutual (its shareholders certainly knew she tanked), it appears Wachovia, which was similarly capitalized, is on the trading block with two potential partners. Reportedly Citigroup Inc. and Wells Fargo & Co. are bidding to take over Wachovia with Spain’s Banco Santander SA (according to the Wall Street Journal anyway) as a possible third bidder in the process.

Wachovia’s stock price fell 27% on Friday and then another 15% in after hours trading.

Wachovia’s current problems stem largely from its acquisition of mortgage lender Golden West Financial Corp. in 2006 for roughly $25 billion at the height of the nation’s housing boom. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of Pick-A-Payment loans, Golden West’s specialty, which let borrowers skip some payments

But like many other banks, Wachovia stands to benefit from the passage of the government’s proposed $700 billion rescue plan — the details of which were emerging from Washington on Sunday.

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.

HSBC Direct announced today that their online savings account interest rate would be falling from 3.50% APY to 3.25% APY. While this isn’t enough to cause anyone to withdraw their funds to put it in another bank, it’s enough to change where people will put their next dollar. FNBO Direct’s rate is still 3.50% APY and WaMu has a 3.75% APY rate, though recent concerns about their liquidity has damped people’s enthusiasm for them.

On the flip side, if you want a good rate from your funds at HSBC Direct, they do offer a 6 month CD now for 3.75% APY.

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.

I mentioned in a post last week that online bank sites can sometimes go down without any warning and that one way to mitigate that risk is to establish bank transfer links in both directions. Another way to mitigate this risk is to simply open two accounts and spread your assets across both of them.

Right now, Washington Mutual is offering 3.75% APY, FNBO Direct and HSBC Direct are offering 3.50% APY; that’s three banks offering 3.50% to 3.75% APY for total coverage of $300,000 FDIC insurance. If you have over $300,000 in assets you are putting in savings accounts, you should talk to a financial advisor. Otherwise, you’re like us and can safely spread it across those three banks and mitigate the risk that any one of those accounts could become inaccessible without giving much interest.

HSBC Direct recently went down for the count for a few days because of technical issues, I hardly noticed because I had my assets spread across multiple banks such that in a dire situation I can still access my cash. I also happen to have external links to my HSBC Direct account and could initiate a transfer out if necessary (the bank was fine, online access was just shaken up).

So, if you’re wary about online banks, diversify this small risk by spreading your money across different accounts.

This little public service reminder is for all the folks who have an account at HSBC Direct. HSBC Direct’s rate of 3.50% APY is set to expire on September 15th, 2008. We don’t know yet what the new rate will be but the expiration date is a mere week away. The last time they extended the rate, they announced it at least a week ahead of the expiration date, so it stands to reason that the rate may slip from that 3.50% APY number.

While no high yield interest rate on any savings account is set in stone, they aren’t CDs, the other banks with high rates include Washington Mutual with a savings & checking combo offering 3.75% APY and FNBO Direct’s savings account offering 3.50% 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

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.

“Rate chasing” is when you shift your funds between high yield online savings banks in an attempt to get the highest possible interest rate for your savings. The question on the table is whether rate chasing is “bad” for you, either from a savings or a credit perspective.

The answer is no. The act of opening a new bank account isn’t a negative event on your credit history. Some banks will do a hard inquiry, some will do a soft inquiry, but in general it is not seen as a negative event on your report. If you were to open a line of credit, that would be seen as a more negative event than opening a bank account.

As for whether it’s bad for your savings, it’s a little bad. You lose interest on the funds as they are being transferred so it takes a pretty big interest rate difference to make it worth it. However, it’s good to have a couple of them available for when you are moving new funds into the “high yield savings account” group. That way you can push it to the largest yielding account.

Who are the leaders now (As of August 1st, 2008)?

• Washington Mutual - 3.75% APY
• FNBO Direct - 3.50% APY
• HSBC Direct - 3.50% APY