The Get Rich Slowly online banking thread lay dormant for several weeks, but recently has bubbled back to life, with plenty of comments and feedback regarding the best internet banks.
Because interest rates are now so closely packed now, the banks are resorting to contests and incentives to differentiate themselves. Some are temporarily boosting yields to attract new customers. Here’s a rundown of current deals.
ING Direct’s Automatic Saver Sweepstakes
Since January, ING Direct has been holding an Automatic Saver Sweepstakes. For each month between January and June 2008 that you deposit at least $100 into an ING Direct account via an automatic savings plan, you’re entered to win one of five $1,000 monthly prizes. There’s only one prize left (for June), but that’s okay — the $30,000 grand prize is available to anyone who has an automatic savings plan active at the end of this month.
Though the odds are slim, this is still incentive enough for me to finally set up my plan. I’ve been funneling my money into my ING savings account manually. The automatic savings plan is more in line with my quest for paperless personal finance, anyhow.
FNBO Direct’s Pay Yourself First Challenge
JLP at All Financial Matters e-mailed me about FNBO Direct‘s current promotion, the Pay Yourself First Challenge. From the official site:
Create a one-minute video about what you’re saving for. Maybe you’re a savings superstar — or a little savings challenged. Be compelling, original and creative — and you may be selected as a challenger in the FNBO Direct Pay Yourself First Challenge!
We’ll give you the tips and advice to start saving more. The challenge is to make it work for you and conquer the everyday problems that come between you and your money. As a challenger, you’ll share your progress and spread the word of your savings success. FNBO Direct will match each contestant’s savings amount and send the grand prize winner on a once-in-a-lifetime getaway.
Upload your video by July 31. Start shooting today!
For more information, see the official contest rules. The prize list is impressive. The first five hundred entrants on YouTube will receive a $10 gift card. The top 20 contestants will each receive $500. The top five contestants will receive up to $5,000 each. And the grand prize winner will receive a luxury vacation.
HSBC bumps rates
HSBC Direct has bumped the APY on its online savings account to 3.50%, at least through September 15th. HSBC offers 2.25% as of February 2009. This may or may not be a good deal, depending on your circumstances. As Jim at Blueprint for Financial Prosperity notes, it doesn’t make sense to move from one high-yield account to another when their rates are this similar. But if you haven’t yet opened an account online, HSBC could be a good choice. Kiplinger’s Personal Finance named it “the best online savings account”.
Provident Direct offers 3.50%
Provident Direct, which I’d never heard of until recently, is also offering a 3.50% APY with no fees and no minimum balance. The account requires $1 to open. A reader named Ben wrote to say that he likes his Provident Direct account so far, but I don’t know anything else about this company. Can any of you offer feedback?
Credit unions offer up to 6.01%
Finally, several readers have written to say that their local bank or credit union is offering 6.01% on special checking accounts. These are invariably similar to the local checking account I highlighted in January: they offer high interest rates if certain requirements are met, the most stringent of which is usually to perform 10 or 12 point-of-purchase transactions each month. (For example, use the account’s debit card to buy groceries.)
I’ve had an account like this at a local credit union since March, but it turns out my spending patterns don’t lend themselves well to this — I get something like 0.50% interest instead. Still, with a 5.50% APY, it might be worth my while to make my habits conform to the requirements.
This article is about Choices, Money Hacks, Odds and Ends
Yeah, it seems that after months of rate cutting, banks are finally trying to be innovative (or at least a bit more competitive) when it comes to trying to attract new money. The nice thing about promos such as the HSBC short-term rate bump is that it doesn’t just apply to new funds — if you’ve been saving with them all along (like we have) you likewise get rewarded. In the past, it hasn’t always been this way.
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JD,
This is the perfect post for a question I had for you! I started researching online banks about a week ago and finally settled on the ING 3% one because of the easy to use reviews.
But here is my question – what is the difference between an APR (annual percentage rate) and a APY (annual percentage yield)? My husband and I have been looking all over for a simple explanation and we think we have a general idea – but there is nothing out there that is just a simplified explanation with examples. So let me ask these:
1) Is there an easy way to say what the difference between APR and APY is?
2) If I have $100 in a 3% APR account for a year, how much will I earn in interest? What about APY?
3) And in a more likely situation – if I have $100 in there at 3% APR how much will I make in a month? And an APY?
We got the “Orange Savings” and want to start with about $1000 in there and adding about $150 a month. But we just can’t figure out what to expect from the interest and when!
Can you (or anyone else!) help us figure this out?
Rachel
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The big thing (though not the only one) driving interest rates down was the Fed trying to prop up the banks by throwing money at them. Why pay consumers a high interest rate on mostly “small” balances when you can borrow money in huge chunks from the Fed for a much lower rate? Banks did the numbers and quickly realised that they were better off taking the government up on it’s offer of nearly free money.
Now that the Fed has finally come to its senses and stopped cutting rates, the banks are starting to bump up interest on deposits a bit in an effort to raise more capital from consumers, since the Fed is no longer so willing to throw money at them.
We’ll have to wait until after the election in November to see what happens long term. Whoever wins the Presidency is going to be able to put a lot of pressure on the Fed to make it conform to their new policies. This could be very good, or it could send us further into a tailspin. Frankly I’m not convinced that any of the 537 liars -er- politicians in Congress and the White House really care so much about America’s future as they care about winning their next election. I fully expect them to continue to make decisions that buy them votes from a short term payoff (such as the “economic stimulus” checks), knowing that long term their decisions will continue to ruin this country (piling up yet more federal debt that we aren’t paying down to fund those checks).
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It seems to me that a majority of people are too caught up with trying to find the greatest, highest, most fantastic savings rate ever, rather than focusing on making things automatic and get out of debt (JD obviously excluded).
If you’ve got $5,000 or $10,000, sure the extra 2-3% will give you $100-$300 additional per year, but is that really worth bouncing back and forth from bank to bank chasing the highest interest rate? Not in my book.
Why not spend that extra energy figuring out how to make an extra $100-$300 instead? Or take that time to figure out how to cut that same amount from your expenses? Seems like there are easier ways to make a buck or two.
Still, for people who don’t have any savings account (or those stuck with 0.5% on a checking account), this is great information.
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For example, I believe that ING is paying a 2.93% annual rate, with a 3% yield. This means that when they compute the interest earned each day, it’s basically (Balance) * 0.0293 / 365 or “balance * APR / Days in a year”. Thanks to your interest compounding over the course of a year, your actual earnings will be a slight bit above the 2.93% rate, and should work out to the roughly 3% yield.
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I signed up for a Provident bank online savings account yesterday after seeing a short posting on the the consumerist blog. I have an ING account, but figure I would try Provident since it offers a higher APY.
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“For example, I believe that ING is paying a 2.93% annual rate, with a 3% yield. This means that when they compute the interest earned each day, it’s basically (Balance) * 0.0293 / 365 or “balance * APR / Days in a year”
Okay so, if I put in $1000, leave it there for a year, and don’t add anything to it then I will make what equals out to 3%? So like, $30?
But since it says it’s compounded monthly – would it grow like $2.50 a month then? So would calculating the monthly interest we would get would be like .0025% interest a month?
The reason I’m confused is if we keep putting towards it, how do you figure the interest then? Like this?
Jan – $1000 – $0 interest
Feb – $1000 – $2.50 = $1002.50
Mar – $1002.5 $100 deposit 2.50 = $1105
Apr – $1105 $100 deposit 2.87 = $1207.87
OR is it like this:
Jan – $1000 – $0 interest
Feb – $1000 $30 (3% interest) $100 deposit = $1130
Mar – $1130 $33.90 $100 deposit = $1263.90
This is just so confusing to me – we are trying figure out how fast this will grow and $30 a year and $30 a month is a big difference!
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I used to bank with HSBC, but moved to ING Direct for my online savings because I like their interface better. The subaccount feature is nice because it shows a consolidated view of all my accounts for targeted savings goals. ING was also rated pretty high in terms of having the lowest number of security breaches, etc.
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As far as ING goes, you are also entered into the contest if you have direct deposit. That’s what finally prompted me to go the direct deposit route.
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The ING savings account gets a lot of press, but I haven’t heard anything about the e-trade savings account which also has a 3.15% APY. I do most of my accounting regarding both banking and stocks through e-trade, am I missing some obvious reason not to do so?
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as far as i know, the apr is the annual percentage rate or the amount you get charged for a loan you take out, basically interest you pay them. the apy is annual percentage yield, the rate they pay you, or what you yield in a year.
just the word “rate” alone is the interest being charged to you for a loan or the interest you are yielding from a savings/checking account. it doesnt take into consideration compounding interest.
thats as far as i know though.
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Justin, I think ING Direct gets a lot of press because they have a good marketing machine and because people have great experiences with them. E-Trade does get a fair amount of press, too, but most people (myself included) think of them more as an investment platform, not a place to save. Also, I hear mixed reviews about E-Trade. Some people, including my cousin, think they’re great. But others have had some real trouble with them. I think if you’re with E-Trade and happy, then it’s best to stick there. There’s no sense jumping around from bank to bank.
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Wachovia has a promotion right now where they pay 5% for the first year that you use their savings account, 2% for at least the next 2 years. You can also earn a bonus of 5% the first year, 2% the next 2 years (up to $300).
Here is the link:
http://www.wachovia.com/savings/way2-save.html
Make sure you understand all the fees,though. They seem a bit confusing!
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I know they may not be in the best financial situation but I believe Countrywide offers 4% or so for their savings link program. It is FDIC backed so if something did happen to their company, I wouldn’t lose my money by anymeans.
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I have an account with my local credit union that offers over 5% interest (lowered from 6.01% earlier this year).
The requirements are direct deposit (or online bill pay or something else, I forget, I have the DD), e-statements, online banking access, and 12 debit card transactions a month.
Now, what I find is that if I get close to the end of the month, and I only have a handful of transactions, I’ll hit the self-check lane of my grocery store (or home improvement store, or wherever I needed to get some things anyway) and use that to cut my one larger transaction into several smaller ones to get over that minimum of 12 without buying stuff I don’t need or annoying a cashier or other shoppers.
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I was quite surprised to learn that because I live outside of town and have a rural address, WaMu considers me a terrorist. I have just spent an hour being transfered back and forth between departments on the phone and restating my problem four times to four different people only to finally be told I can try again in one week to sign up online and it MIGHT work if I use my Postal Express address in town (it isn’t my real address, but they accept mail for me if it can’t go to my real, official postal service address out here in the desert) although it might still turn that down since that is not the address on my drivers license and other I.D. So, just be aware – you will be turned down for “security reasons” if you do not have a “normal” street address. I did try to explain to them that my 50 mile round trip to town was a big part of the reason I prefer to bank online. Oh well, their loss. I’ll find another online bank.
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@Rachel – The Simple Dollar actually has a good article on APY/APR that should help you.
Your second example is wrong. The gains are all “Annual” (hence the ‘A’) gains, not monthly. I still have to sit and think about that every time I look at those rates.
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Provident is a brick and mortar bank in Maryland. I’ve had my checking account with them since 1988 and although I’m annoyed by a couple of their branches (like the one in Towson that has only a drive-up ATM which shares the waiting line lane with two drive-up windows – LOVELY on a Friday morning – NOT!), they’ve been a good bank for me. They are locally owned, at least for now, FDIC insured, etc. Their stock has been hit, just like many other financial institutions, but I wouldn’t hesitate to use them if the rate appeals to you.
For me personally, I keep my savings at another local bank because I want to make it difficult for myself to switch funds from savings to checking. Trust me, I know how I am!
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Here’s the low-down on Provident…Provident Bank is a major bank in the Baltimore-Washington area, I’ve had my checking account with them for the past couple of years. On a recent visit with a branch manager, she told me about Provident Direct, a new service they’re offering. You get the high interest rate since it is online, but you can still go into a branch to do certain things with your account, which makes them really nice if you live in the area. Online transfers between your Provident Direct online savings account and your regular Provident checking account are instantaneous between i think 8 AM and 8 PM eastern time.
The downside for the rest of the country is that they aren’t a national bank and have no plans to be such, so if you don’t live in the area you lose that convenience of being able to go into a branch with questions or to make a withdrawal. Overall though, a relatively simple online savings account, although I don’t know what the experience is like for someone who doesn’t do their everyday banking at Provident as well.
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Thanks Jeff!
I think I might get it kind of now.
You take your balance at the start of that month, divide it by 12 (your ‘average’ balance they figure) and multiply that by .03 (3%) and that is the interest you earn that month.
Then the next month you take the balance, add the interest you earned, and any deposits and do it over again to figure out that months interest. Right?
Here is the math I did for opening an account with $1000 and then adding $100 to it each month:
DEC DEPOSIT OF $1000.00
JAN 1000.00 2.50 100
FEB 1102.50 2.75 100
MAR 1205.25 3.01 100
APR 1308.26 3.27 100
MAY 1411.53 3.52 100
JUN 1515.05 3.78 100
JLY 1618.83 4.04 100
AUG 1722.87 4.30 100
SEP 1827.17 4.56 100
OCT 1931.73 4.82 100
NOV 2036.55 5.09 100
DEC 2141.64 5.35 100
—————————–
TOTAL BALANCE: 2246.99
TOTAL PUT IN: 2200.00
TOTAL INTREST: 46.99
Is that right?
p.s. These comments dont show lists really well, but I think it basically grew from $2.50 interest gained a month to $5.35.
I guess it doesn’t seem like much, but if you saved up to $10,000 at the start of a year those numbers would go up a lot faster!
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I’ve been using Emigrant Direct for 2 years now and have had no problems. Good customer service too (but the only time I needed them was when I first signed up). Emigrant also has one of the best online security features for accessing your account that I’ve ever seen. Seriously, I feel well protected with them.
I also just signed up with E*Trade’s savings account about 3 months ago. Its user-friendliness is not as easy as Emigrant’s (I have to dig around more with E*Trade), but they do pay a higher APY on average. I’ll wait before I start transferring my money back and forth b/w each savings account. I’m leaving my current funds in Emigrant alone while posting new savings transactions to E*Trade.
Then there’s my credit union which pays me 2.75% APY on my checking. Stipulations are at least 5 transactions on debit card/month, use estatements and use billpay for at least one bill/month.
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Amen to the Credit Unions. Mine hasn’t paid less than 3.25% in the last several months for a money market account, and there are fewer stipulations than those I’ve seen described above.
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Rachel:
You have the right idea and your numbers seem to be very close, but I don’t know if you get the mechanics. You are using the APY as an APR in your calculations. 3.0 APY is 2.9595% APR compounded monthly, and that is what ING is advertising right now.
Also, you take your average balance over the course of the month. So it depends on when you transfer the $100 in the month. If it’s on the last day of the month, then your numbers are correct. If you transfer the money on the first day of the month, then your interest numbers are one month behind. If you transfered the balance at the middle of each month, then you would have to average your calculated interests for two months to get the correct number. (i.e., your average balance for January would be 1050)
The reason you are dividing by twelve is that is how you get the monthly interest rate from the annual interest rate. (i.e., 0.029595/12 = .002466) That is because almost all savings accounts compound monthly – the interest is deposited once a month. If they increased the frequency of compounding, but kept the same rate, then the APY (yield) would be higher.
The way you should look at APY is that if you didn’t add or remove any money from your account other than allowing the interest to accrue, all of the interest posted to the account would add up to the starting balance times your APY. So, at ING, 2.9595%/12*(Monthly balance), 12 times makes $30 for the year for a starting balance of $1000.
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Hi. I just wanted to inform you that my current savings account from Citi gives me about 4.5%. That is more than all the regular bank savings account you have listed.
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Thanks Matthew!
I may not have it exact – but I’m just happy that I’ve got the general idea. I’m glad I won’t be wondering why there isn’t an extra $30 in my account each month!
Thanks for the help!
Rachel
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I’ve got a WaMu checking/savings account currently and I really like it. Not only do you get a decent interest rate on your savings but there are lots of perks associated with the checking account too. Free checks for life, $0.03 back on each debit card purchase, and free ATM withdrawals from any ATM. It may not sound like much but it does add up over time.
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I guess I am called a rate chaser. I am a old person who doesen’t trust the stock mkt. My money is in CD’s. The fed has killed my interest income. My savings have left the local banks, still have checking there. when someone can go from 2.8 to 3.8 I figure that is 50% more. Every nickle and dime counts. Have two internet accounts. Which ever pays the best gets the money. Countrywide and GMAC are both great. I still check them all out, and no problem to change.
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I had started typing a comment here, but don’t remember if I submitted it. So if I’m repeating, I apologize.
I’m starting to grow my emergency fund, recently getting out of debt. Based on comments on a previous post on GRS, I opened an ING savings account on May 20 with $250 so I could get my bonus. In the last 10 days of the month with $275, I got as much interest as I have been getting with my Chase savings account with $1500+. Interest is pitiful 0.15 percent.
This has really helped me to get fired up about growing the emergency fund. I’m cutting more expenses and have decided that I shouldn’t need to have $300 sitting in a savings account to keep from getting fees. As Dave Ramsey would say, that’s feeding the cheetah. Chase has bit my behind several times in the past few years. I’m done with Chase. Eff Chase.
I found a credit union that requires only $5 in the savings account and free checking, plus is in an extended network of co-op CUs so I could extract cash from my checking account reasonably close to where I grew up. I have a plan. This is great.
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Since my last post, I found a co-op CU that meets my specs with an extended ATM network. I have a plan now. Thanks for helping me to figure it out myself.
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Just a musing from a jump across the (well, a) pond: have these yields on cash accounts in America changed much over time? I live in Australia, and here interest of around 5%pa used to be the par, but these days its up to 8%pa or so, and 9%pa for the accounts that make you jump through hoops to get paid. Was that also the case in the US previously?
I’d offer to open up a bank account for you here, but I suspect with currency exchange rates the brokers would take all the earnings, unfortunately.
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You may want to also check out http://www.mtb.com (M&T Bank). It is a large regional bank based out of Buffalo, NY. They are currently offering an eMoneyMarket account that is paying 3.25% APY (1$ min, no fees, etc.). M&T Bank is a VERY conservative bank and their largest investor is Warren Buffett (which says a lot!!) -
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I have received good service from E*Trade Bank, Countrywide Bank, and HSBC Direct and have had no problems with their online interface.
I have experienced multiple problems with Bank of America and don’t wish to bank with them anymore. When Countrywide is sussumed under BOA I think I will move my money elsewehere.
For those in certain cities, ING has cafe’s that offer coffee, free internet, and financial seminars. On ING’s website you can download a coupon for a free beverage.
http://home.ingdirect.com/about/images/aboutus_cafes_coupons_lg.gif
D.B.
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My local credit union has setup a new checking account where if you have direct deposit and receive all your statements online, they provide a generous 7.50% rate on the first $500 you have in your checking account, and then 0.30% for anything above $500. Since the only thing I needed to do to get this was sign up for online statements, this ends up being a great deal for me. I don’t save alot, due to the $500 limit, but it does get me around $4 extra each month. Again, not large, but I do appreciate it. Anything I have above $500 goes into my ING Direct account.
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Wow! I need to change banks. These are giving out some great rates. I looked into a credit union that offered high interest rates once, but found out it wasn’t worth the offer.
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= = = = = = = = =
J.D. Says:
Provident Direct, which I’d never heard of until recently, is also offering a 3.50% APY with no fees and no minimum balance. The account requires $1 to open. A reader named Ben wrote to say that he likes his Provident Direct account so far, but I don’t know anything else about this company. Can any of you offer feedback?
= = = = = = = = =
At the moment, I am with EmigrantDirect. Their rates are about half of what they used to be when I first joined 3-4 years ago, and I decided to shop around.
So far, I have only looked into Provident and WaMu. The former charges $3 for _every_ interbank transfer; ED provides this service for free. While I don’t intend to juggle funds daily, just the thought was enough to turn me off.
WaMu is a different story. IANAL, but I make a point of reading the fine print before signing any agreement. I’m not sure why they saw fit to make the agreement run in excess of one hundred pages. There was plenty in there to keep me from wanting to sign up with them. I guess that’s what is now known as ‘Gotcha Capitalism?’
The only other one I plan to look into is HSBC. It seems they now provide checking services in addition to online savings. I thought of doing something similar with ING over a year ago, but I dropped it after I read stories of hard credit pulls for Electric Orange accounts.
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I warn GRS users to really read-up on Wamu before giving them any of their hard-earned cash. WaMu charged me ridiculous fees, and I’m now shopping for a new online savings account, as far away from WaMu as possible.
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A follow up:
After doing some research, I signed up with HSBC. Here are some of the reasons I decided on HSBC.
- Unlike EmigrantDirect (which I am currently with), account holders are allowed to have more than two external funding accounts. It so happens that I have accounts with two credit unions and a bank. This will allow me to move funds from any of them.
- Another plus is the absence of a hard credit pull such as ING is known to conduct with their Electric Orange accounts. Those pulls are known for adversely affecting credit scores.
- Finally, the Terms and Conditions. As I noted earlier, the T&C for WaMu exceeded ONE HUNDRED PAGES. That’s right, 100 pages. The T&C for HSBC is approximately a third of that**. AFAICT, there are no gotchas like those associated with the WaMu fine print.
** I’m not sure why, but the T&C for HSBC was printed on brochure-sized pages. I mean the document could easily fit on far fewer A4/letter-sized paper pages (maybe a dozen?)
I should probably inquire about the rationale for the page sizes…
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@Maren.. thanks for the tip!
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Hey, check out my submission for the Pay Yourself First video contest:
http://youtube.com/watch?v=wn6YhPPK0v4
Watch and rate it!
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http://www.smartypig.com consistently pays a higher savings APY rate than EmmigrantDirect which I also have. I transferred everything to USA Smartypig and left zero in Emmigrantdirect (which was a PAIN in the butt to open the account just in case their APY goes higher. Smartypig was EASY and fast to open.
Does ANYONE know the difference between the Australia PA rate and USA’s APY rate? What is a PA rate?
Smartypig is paying 3.23% APY to U.S. citizens and 4.50% PA rate to Australians. I checked the conversion rate http://www.advfn.com/p.php?pid=forexconverter&btn=go&elists=1|3|7&elists=2|7&email=Enter+Your+Email+Address+Here&curcode1=USD&amount=24%2C000.00&curcode2=AUD&go.x=84&go.y=34&go=Perform+Conversion&symbol=FX%3AUSDAUD
for
$24,000 US dollars to Australia’s dollars and it was
24,000.00 US Dollar = 37.1280
Australian Dollar
1 USD = 1.5470 AUD
1 AUD = 0.6464 USD
If the PA % Smartypig Australian is paying 4.50% versus Smartypigs 3.25% APY to U.S. people and the US currency rate is favorable to the Australian dollar, WOULD IT MAKE SENSE to open an Smartypig Australian savings bank account?
I COULD CARE LESS about he U.S. FDIC program as I do NOT trust this “insurance” will save anything. It is a rip off that banks are supposed to put into this insurance company IN CASE they go under BUT the U.S. taxpayer gets screwed into “loaning” them cheap money directly instead and then the U.S. banks LOAN IT OVERSEAS to get higher interest rates for THEMSELVES and give their U.S. bank customers crap for an APY.
Should I based on the above situation, move my money to the Australian bank?
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Hi Mary,
PA stand for per annum, and they are the same thing.
The Australian Reserve has gutted interest rates over the last year to keep the economy moving, so while still feasible it’s nowhere near as lucrative as when at-call deposits were paying 8.5%pa (I commented about this further up the thread when times were roaring).
Also, if you’re opening a deposit account in an Australian bank, the first million AUD is guaranteed by the government, so make sure you keep below that to avoid an insurance fee.
Basically, by buying AU dollars you’re speculating that the AUD will not rise relative to the USD. If the AUD rises, it will eat into your earnings, if it falls, you’ll make even more money on the currency speculation. Whether or not it seems smart is up to you.
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