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Fed Cuts Funds Rate by 25 Basis Points - Review of Best Savings Accounts and Reward Checking Accounts in Falling Rate Environment

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As many had expected, the Fed cut the target federal funds rate today from 4.75% to 4.50%. The housing correction was mentioned by the Fed as one of the reasons. From the FOMC's statement:
Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction.

However, the Fed hinted that inflation could reduce the chance for additional rate cuts:
Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation.

This CNN article has more on this Fed rate cut.

So with this new rate cut, it's likely that we'll see a continuation of savings account and CD rate cuts that we've seen in the last two months. There have been a few online savings that have held their rates steady in the last few months. But you have to wonder if it's only a matter of time before these banks start cutting.

I thought it would be interesting to include a summary of the top yield online savings account with rates that have not fallen any since the first Fed rate cut. In addition, I also included a sample of reward checking accounts and compare how these rates have changed.

For those not aware of a reward checking account, this is a new type of free checking account that rewards customers with very high yields (some as high as 6.25% APY). The main catch is that it requires monthly debit card usage (typically 10 non-ATM transactions per month). Another important limitation is that most limit the amount that can earn the high yield (typically the cap is $25K).

A few banks and credit unions have cut these reward checking rates, but many have maintained their original high yields. Overall, reward checking account rates are holding up better than the online savings account rates. The reward checking accounts do have some features that may allow banks to keep rates higher. For example, a significant percentage of customers may fail to meet the debit card usage requirement, and therefore, earn a very low rate for the month. Also, banks should make some money on the debit card transactions. But even with these features, it's probably safe to assume that reward checking account rates will fall as the federal funds rate falls. Some will likely fall faster than others. It seems likely that reward checking accounts with small deposit maximums of $25K should have a better chance at maintaining a higher rate.

Here are the online savings accounts with the highest yields and with yields that have held steady over the last two months. For a more complete list, please see the savings account list in my weekly summary:

[Update 11/02/2007: Countrywide's savingslink yield dropped today to 5.35% APY.]
[Update 11/01/2007: Everbank lowered the yield today by 50 basis points. The new promo rate is 5.51% APY and the new standard MMA rate is 4.51%.]


Here's a sample of reward checking accounts that I've reported on this year. For other reward checking accounts in other parts of the country, please see my reward checking account page and my best checking account post.

  Tags: savings account, reward checking account

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Comments
11 Comments.
Comment #1 by tba02 (anonymous) posted on
tba02
I was OK leaving 50K+ of my money at ING w/ Electric Orange at 4.90 but now it's time to reconsider. I'll wait and see if my other accounts at WAMU and FNBO drop before repositioning. Hopefully one or the other will hold strong (and WAMU didn't drop rates at the last cut). Otherwise, it might be time to rate chase a little.

1
Comment #2 by Anonymous posted on
Anonymous
C'mon UFB.. keep the rates steady. You haven't failed me yet!

1
Comment #3 by Anonymous posted on
Anonymous
You sure seem to push those Reward Checking Accounts.

1
Comment #4 by Anonymous posted on
Anonymous
FYI, RateEdge (NY) just dropped to 5.00%.

Rats.

1
Comment #5 by Anonymous posted on
Anonymous
First Federal: Remains at 6.01% for their Moolah Checking, $25k cap, available in NC, SC, GA, & FL. Opened an account online after you mentioned it a few weeks ago - http://bankdeals.blogspot.com/2007/10/601-reward-checking-account-available.html They also just became a member of MoneyPass ATM network which is available nationally - www.firstfederal.com - see bottom right of homepage for atm network.

1
Comment #6 by Anonymous posted on
Anonymous
ing direct dropped their rates.

1
Comment #7 by Anonymous posted on
Anonymous
Does HSBC reduce the rate?

1
Comment #8 by Anonymous posted on
Anonymous
I just noticed today that Zions Bank has dropped the rates for their Deseret Money Market Account. I'm not sure of the timing of the change, but I just noticed it today in the wake of the Fed cut.

The rates now are 5.26/5.40% APY for balances $50,000 and above, and 5.06/5.19% APY for balances $1,000 to $49,999.99. Their rates had been about .10% higher previously, but remain among the highest rates accounts for MM checking.

One of their only drawbacks is a somewhat restrictive internal ACH transfer policy, though their low limits can be surpassed by making an advance call/request to their very good customer service.

Their web site for rate info on this and other accounts is:
http://www.zionsbank.com/deseret.jsp?cid=2816

--John from Los Angeles

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Comment #9 by David Scubadiver (anonymous) posted on
David Scubadiver
I don't think the reward accounts are being pushed as per the comment above. I think they have been a remarkable product and deserve everybody's consideration, if not for their primary savings account than for their primary checking account. When the rates drop, they will still be higher than the rate your checking account earns and everybody needs a checking account so why not get one with a great rate?

1
Comment #10 by Anonymous posted on
Anonymous
I'm told that moneypass net work ATM
invvolves a fee - First Federal Branch. Full page ad in Charleston paper for the 6.01% Moohlah account.
Maybe it'll hold for a little while.

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Comment #11 by Aaron (anonymous) posted on
Aaron
Twinstar down to 4.25.

1