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Dollar Savings Direct Cuts Savings Account Rate Again - Options and Issues to Consider

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DollarSavingsDirect
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
03/17/09: 2.05%
03/07/09: 2.25%
03/03/09: 2.50%
02/21/09: 2.65%
02/12/09: 3.05%
02/05/09: 3.20%
01/23/09: 3.50%

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.

Financial Health

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).
  Tags: DollarSavingsDirect, savings account

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Comments
9 comments.
Comment #1 by Anonymous posted on
Anonymous
Thanks very much for the info. about Dollar Savings Direct. As an account holder, it is very helpful to me. I would like to say, however, that my experience with DSD's ACH transfer capability has been excellent, especially outbound. It is quick and unrestricted in amount. Keep up the good work!

1
Comment #2 by JCE (anonymous) posted on
JCE
I recently closed my account due the severe interest rate drops. I never had any problems with my accounts at DollarSavingsDirect and EmigrantDirect.
Interest is posted at the end of each month, therefore the best time to close the account is right after the interest is posted. To close the account I was instructed by customer service to transfer my entire balance out, then when the account showed zero balance send an online message to customer service to close the account. I did this at the beginning of the month without any problem.

1
Comment #3 by D (anonymous) posted on
D
I am so glad that I didn't open up an account with Dollar Savings Direct recently. I almost did, but then I remembered how they treated me with their American Dream Savings Account.

I get so tired with how these banks play their little games just to get your money and then lower their rates. I, for one, will not put up with it. There are still a few places around like Alliant Credit Union, thank goodness!

1
Comment #4 by Anonymous posted on
Anonymous
Sometimes you have to play their games when it is in your best "Interest". When it's not, you walk.

1
Comment #5 by Anonymous posted on
Anonymous
Yes, D, Alliant CU is good right now, but with First Entertainment CU lowering their rate today to 2.7%, you can bet your bottom dollar that on April 1 Alliant will lower their Savings Rate to 2.75%, as both credit unions seem to be on par.

And after that, Alliant will most likely go to 2.5%, etc., etc.

On another note: With a lot of these online accounts bottoming out, can we expect some of them to have to close since they will be losing a ton of depositors?

1
Comment #6 by with_interest (anonymous) posted on
with_interest
i'm hesitant to open accounts at new banks.... but these rate cuts have made me take my money elsewhere.

i pulled $25,000 from my 2 direct banks and opened a rewards checking account, earning 5% interest.

"reward checking" accounts are a savers only salvation these days.

1
Comment #7 by Anonymous posted on
Anonymous
I had a MMA with Emigrant, the parent company of Dollar Savings Direct; this blog post was a wake up call to transfer the funds out of the 2.00%APY account to a slightly higher 3.15%APY.

It's kind of funny moving money into a "high yield" 3 percent account.

... I remember when my internet checking account used to yield 6.30% in the 90's and when my passbook savings account yield was over 11% in the early 80's...

1
Comment #8 by Anonymous posted on
Anonymous
I remember when I opened my first passbook savings account at 5% back in the early 1970's. The rate was later adjusted to 5.25%. Then the Arab Oil Embargo came along and pushed oil prices toward $1 a gallon and those long winding gas lines. That resulted in high inflation and high interest rates and introduced money market accounts with rates above 10% in the early 1980's. The passbook savings accounts could not compete and is rarely offered by any bank now (it actually was a S & L type of account). Then when the FSLIC went under in the 1990's, those accounts disappeared along with it.

1
Comment #9 by Anonymous posted on
Anonymous
Seems to be 2.05 now

1