Online Savings Banks Lower Interest Rates

By Pinyo, on January 30, 2009

This is one of those times that I wish my money were in a 5-year certificate of deposit instead of a high yield savings account. About a week ago, I got news from WTDirect that they lowered their savings account interest rate to 2.81% APY. Then HSBC Direct followed suit and lowered their online savings interest rate to 2.45% APY. And just tonight, I got news that Etrade Complete Savings Account interest rate will go from 3.01% APY to 2.50% APY effective February 2nd. I think it’s time we stop calling these savings accounts high yield.

etrade-savings

This prompted me to look around for other options. The first stop was MoneyAisle CD and High Yield Savings Auction Site. According to MoneyAisle, I can move my money to First Trade Union Bank’s High Yield Savings and get 3.25% APY. Alternatively, I can open a 12-month CD with Flagstar Bank at 3.25% APY. I am not familiar with these financial institutions, but both of them are FDIC insured so my deposits are safe up to $250,000 per bank.

Note: auctions were based on a $10,000 deposit.

I also check out BankRate.com and it looks there are a few banks that offer above 3.25% APY for the high yield savings. Treasury securities interest rates are also very low right now. Looks like Lending Club is the only one paying decent interest rates; however, I have to keep telling myself that peer-to-peer lending is not as safe as high yield savings and CDs because of the default risk. And the default risk could rise significantly if the economy continues to weaken.

Are you affected by these interest rate changes? What are you planning to do?

This article was featured in the Carnival of Saving Money at Deposit Account.

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8 Comments

Finally Frugal
January 31, 2009, 12:56

I have ING Direct, and just noticed that my savings rate decreased to 2.4%. While this is still higher than what I could get at a ‘bricks and mortar’ bank for a regular checking/savings account, it’s a bit disappointing. I think I started out at something like 3.25% about a year ago!

While I don’t have enough in savings (yet!) to consider a CD, I’ve considered the ‘CD laddering’ approach for when I am completely out of debt (I’ve a ways to go on this goal!). Thanks for the links to other online banks—although I do like ING, it’s nice to know that there are other choices, in case ING either goes away entirely or the interest rate decreases even more substantially. . . .
Chiko
January 31, 2009, 13:19

I have come to the understanding that these institutions will always change their rates, so instead I just take risk with my money and make more. I focus on investing in penny stocks for the short-term and then put my profits in these institutions. So whether they change their rates, I am still making money.
Steve Rabago
February 1, 2009, 16:56

Peer-to-Peer lending can be high risk if you do not know your borrower. Take a look at ZimpleMoney.com which was established to facilitate loans between people who already know one another.
Pinyo
February 1, 2009, 19:02

@Finally Frugal – I agree, it’s definitely disappointing. Early last year when HYSA was paying slightly higher than CDs, I moved the bulk of our money into HYSA because of its greater liquidity. Now we are getting less for our money. But I am trying to look on the positive side and say that I have ready access to the money if I ever need it.

This is why diversification is good even when we are talking about HYSA versus CD.

@Chiko – I don’t think investing in penny stocks is for everyone, and we can’t really compare it to HYSA in term of risks involved. Anyway, I am glad it works for you. Making money in this economy is good.

@Steve – Thanks for sharing. I’ll check it out.
ratbert03
February 2, 2009, 13:26

Just got an email from FNBO Direct saying that their dropping their rate to 2.6%.

Venture Bank Direct seems to be holding steady at 3.3%; when I opened an account with them last Nov, it was 3.6% so compared to many other banks, they haven’t slashed their rate drastically but who knows about the future.

Even though ETrade is lowering their rate, if you haven’t opened a savings account with them, go to: http://www.mydollarplan.com/et.....-up-bonus/

Open an ETrade account and get $25, my account got credited with the $25 bonus within a week.

Disclaimer: I’m not affiliated with the mydollarplan.com website, it was the only place that had the $25 bonus link I could find.
ChrisCD
February 3, 2009, 9:39

Pinyo, I haven’t been here in a while. The changes look great. I noticed you mentioned the 1Y CD at Flagstar above and that CDs are protected to $250,000. That $250,000 protection at this point is temporary and expires 12/31/09. Although, many feel it will be extended, I wouldn’t risk investing above the original $100,000 level on CDs that will mature after 12/31/09.
Pinyo
February 3, 2009, 9:50

@Chris – Good point about the temporary increase of the FDIC insurance. Thank you for pointing that out.
Richard
February 9, 2009, 0:33

Yes, I think many people will be seeing their savings rates go down at the moment which is natural after rate cuts. Still worth shopping around for best returns. If interest rates get high then it’s good to lock them in for a while.

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