HSBC's Online Savings Account Rate to 4.50%

HSBC Direct just sent customers an email notifying them that the new Online Savings Account rate will be changing to 4.50% APY starting on May 1st.

Before this promotion started in late January, HSBC's standard rate had been near the top for savings and money market accounts (see chart). For much of last year, they were closely following the Federal funds rate. They were often the first ones to bump up their rate following the Fed meetings.

With most of their competition still at 4.60% or 4.50%, I suppose they didn't see the need to keep the rate at 4.80%. There are others at 4.75% and above, but these have minimum balance requirements. Also, HSBC probably succeeded in attracting new deposits. In the last couple of months they did more advertising on TV than any other online bank that I've seen. As we've seen with ING Direct and Emigrant, once a bank is able to make big gains in deposits, there's no reason for it to remain on top in the rate war. It just has to remain competitive to keep the majority of the people who are not rate chasers.

Alternatives for Your HSBC Money

For a no-minimum savings account, the two banks with the highest rates are VirtualBank and Western Financial Bank at 4.60% APY. VirtualBank has the advantage of a $20 signup bonus (see post).

Another option to consider is Everbank's FreeNet Checking account which is offering 5.51% APY for 3 months for new customers. After the first 3 months, it goes back to the standard checking account rates (currently 3.01% APY for balances under $10K). If you don't use bill pay, there is no minimum and no monthly fees. So after the 3-month promo you could transfer the money out to the next good deal. Three months from now, interest rates may be 0.25% to 0.50% higher.

For those who want something more permanent and don't mind a minimum balance requirement, GMAC Bank is a good choice. The rate on their money market account is currently at 4.75% APY. GMAC has a $500 minimum. But there are benefits over the no-minimum savings accounts like limited check writing. GMAC has done a good job this year and in the second half of last year of keeping near the top of both money market rates and CD rates.

Another thing to consider is that the Fed will be meeting again on May 10th. So HSBC Direct could be raising their Online Savings rate back close to 4.80% next month. If HSBC doesn't, maybe EmigrantDirect will finally get back into the game.

Thanks to those who notified me of this HSBC email.