Update 03/17/09: The yield has fallen to 2.05% APY.
DollarSavingsDirect again lowered its savings account rate. It's now only 2.25% APY. This is the fourth rate cut in the last month. Here's the history of the rate cuts since they first cut the rate from 4% to 3.50% in January:
Date of Chg APY
Time to Switch?
I think it's time for Emigrant to remove the tagline "America's Highest Rate" from its Dollar Savings Direct website. While many other banks are slashing rates, there are still many internet banks offering savings account rates higher than 2.25% APY. There are even a few offering 3% or above. ShoreBank is still offering 3.15% APY (see post) and CNB Bank Direct is still offering 3.00% APY (see post). In addition to banks, Alliant Credit Union is still offering 3% APY, and this should at least last through March (see post).
These banks and credit unions will likely cut rates also, but if we judge Dollar Savings Direct based on the recent history of Emigrant Direct, I'm not sure it'll remain in the top field of online savings accounts. Emigrant Direct Savings rate dropped below 3% in March 2008, and it has only gone down since then. It's now only 2% APY.
With all banks cutting rates, it may seem hopeless to switch now just for what may be a temporary hike in interest rates. Just remember that this is what banks are hoping people will think. Competition is an important factor that is preventing rates from falling to near zero percent. The more we are willing to move our money, the more competition there will be.
The issue of Emigrant Bank's financial health may be another reason to move your money. However, if you keep under the FDIC limits (which I recommend for any bank), I don't consider the financial condition of a bank to be a major issue for a savings account. Emigrant Bank's ratings for safety and soundness are weak: 1 star (lowest) at Bankrate.com and 2 stars (problematic) at BauerFinancial. These ratings are based on 9/30/08 financial data. There's an interesting article that discusses Emigrant Bank's health at Crain's New York Business. Here's an excerpt:
Its largest division posted a $226 million net loss in the fourth quarter, and the institution accepted $267 million in federal bailout money in January.
Issues of Transferring Money
If you're going to transfer your money out of Dollar Savings Direct, there are a few important things to note.
First, make sure you carefully read the account disclosure. Here's an important issue regarding the minimum balance:
You are required to maintain a minimum average daily balance of $1,000.00 in your Dollar Savings Account for the statement period in order to receive the advertised APY. In the event the average daily balance in your Dollar Savings Account falls below $1,000.00 during the statement period, your account will receive an APY of 1.00%.
So if you transfer out most all of your money early next week, your March average daily balance may drop below $1,000, and you would end up earning only 1% APY. Here's a good resource to compute your average daily balance. It should be noted that there's not going to be much difference in interest earned between 1% and 2.25% for a $1,000 balance in one month.
If you do transfer your money, don't leave a zero balance in your account. In general, for any no-minimum account, it's best to leave at least a dollar to ensure the account doesn't get closed. Here's what the account disclosure states about a zero balance:
If you close your Account before interest is credited, you will not receive the accrued interest. Additionally, if your account has a zero balance, you will not be credited interest.
For other issues on transferring money out of Dollar Savings Direct, refer to this previous post. The account doesn't have the best ACH transfer system.
To find high-yield savings account alternatives, please refer to my weekly rate summary. Note, I'm in the process of updating this. I'm afraid Dollar Savings Direct isn't the only one to cut rates this week (see the daily bank rate changes).