Beating Broke

Personal Finance from the Broke Perspective

Emigrant Bank Announces 3.75% Dollar Savings Direct

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Emigrant Bank announced their newest high yield savings account today.  Called the Dollar Savings Direct account, it will pay out what they claim to be an industry high 3.75% on all balances over $1000. I believe that there is at least one account that pays higher than 3.75% and the WaMu account is paying out 3.75%.  Still, a pretty good rate that is hard to beat.

If the name Emigrant Bank starts ringing bells for you, it’s because they run the Emigrant Direct savings accounts.  The Emigrant Direct savings accounts are a no minimum account that currently are paying 3.00% on all balances.  Neither account charges any fees and link directly to your current checking account.

It’s beginning to look like the Online Savings market is starting to heat up again.  With the current financial turmoil, people are starting to look for the highest yield they can find.  And quickly overcoming any qualms they have on using a online account to do so.  It’s a good thing for savers.

Should We Be Worried About Bank Failures?

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The $752 million dollar Columbian Bank and Trust of Topeka was shut down on Friday.  It became the ninth such bank closure this year.  Compared to only 3 closures in 2007, that seems like an awful lot of closures.  But, should we be worried?

Not really.  With the implementation of the FDIC and NCUA, the Government has taken away a lot of the sting of a bank or credit union closure.  There’s still plenty of inconvienences, but the insurance has you covered for most losses.  Your account is insured for up to $100,000, and there are some circumstances where it could be more.  But keep $100,000 as the baseline to worry about.  As long as you have less than that amount, you have nothing to fear.  Your money is insured and relatively safe.  The only inconvience will be delays in getting to your money if your institution should fail.

Another thing to keep in mind is that having this many closures, while not normal, isn’t unheard of.  In 2002, the FDIC closed 10+ banks.  Those were most likely a result of a little too much enthusiasm lending to dot com startups instead of real estate loans, but the effect was the same.  And if you’re thinking that Credit Unions are safer than Banks, you’d probably be only slightly right.  There have been 8 credit union closures this year so far.

So, should we be worried about bank failures?  Maybe a little, but not enough to lose sleep over.  And banks and credit unions are still much safer than bundles of cash in your mattress or under the old oak in the back yard.

Choosing an Online Savings Account is Easier Than You Think

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If you really want to over simplify things, you can choose online savings accounts by no other requirements than the interest rate that the account is paying out.  If that’s all you care about, then the current high yield king is WaMu with 3.75% (current as of 8/5/08).  The rest fall behind, but most all of them stick in the 3-4% range with only a few outliers in each direction.

So, unless you really, really want to chase rates, you’ll want to pick a savings account with some other things in mind.  Each person is going to have different things that they like and require, so I’ll share how I selected my accounts first.

When I was looking for a high-yield savings, I was looking for something to hold our emergency savings.  A lump of money that wouldn’t get touched for quite some time (hopefully). Because the money was just going to sit around interest rate was one of the most important factors.  At the time, I had narrowed it down to three accounts.  ING Direct, HSBC, and e-Trade.  e-Trade was paying 4%, HSBC was at 3.75% and ING Direct was at 3.3%.  They were all pretty close.  I decided that the interest difference was fairly minimal.  I chose ING Direct.  The deciding factor was the $25 bonus I got for opening an account with more than $250.  Even at 4%, that was well over a years worth of interest up front.

I’ve since moved our account over to e-Trade for the higher interest rate.  I still hold our account at ING Direct (several actually including a Orange Checking) for other household savings accounts such as a home improvement fund.  It really is just a matter of accounting now, so I could easily move the money from one to another.

When you go to choose your account, be sure to take into effect some of these factors.

  • You’ll want to make sure that the account will let you transfer to another savings account.  ING Direct doesn’t.  I get around that by pulling the money from my e-Trade account.
  • Is there any risk involved to the bank?  With a few banks being shut down, this is more of a factor than it should be.  Remember to make sure that wherever you put your money, it’s FDIC or NCUA insured.  As long as that is in place, you won’t lose your money up to $100,000.  And don’t be afraid to double check insurance claims with third parties.
  • Do you need a Debit Card?  Many of the accounts don’t give you a debit card.  ING direct does, and that was another important factor in my choice.
  • Are there any bonuses involved?  As far as I know, ING Direct is the only one that currently has a bonus program.  All you need is a referral code and you’ll get $25 with a new account of over $250.  (If you need a referral, let me know and I can get you one.)
  • Do they require other accounts?  Will they make you open other accounts to hold the savings account?  WaMu, for instance, requires a online checking account in order to have an online savings account.  Not a huge deal, but can be a bit of a nuisance.

I’m sure that there are other factors to take into effect when you select your account, but those are the big ones.  With interest rates as competitive as they are in this niche of accounts, you’ll be hard pressed to make your selection on interest rate alone.  And keep in mind that just having a high yield account puts you well on your way to debt freedom and financial independence!