HSBC Direct is offering some fairly competitive rates on its Online CDs. They're not great, but there are a few features that help make these a better deal. The three most competitive rates include 2.35% APY for 18 months, a 2.30% APY for 12 months and a 2.05% APY for 9 months. One nice feature is a very low minimum deposit requirement of only $10. But more important is the early withdrawal penalty. It's only 30 days of interest. Here's what is described in HSBC's FAQ page:
If you withdraw any of your principal from your HSBC Direct Online CD, you will incur a penalty of 30 days simple interest. The penalty may reduce principal if there is insufficient interest available. There is no penalty for withdrawals made during the grace period.
Most banks have at least 90 days of interest penalty for terms of one year or longer. The early withdrawal penalty is especially important now when there's a risk of high inflation in the next year or two. Interest rates may rise sharply as they did in the early 80's. If that happens, a mild early withdrawal penalty will let you break your current low-rate CD without too much loss.
You can open HSBC CDs online and fund it electronically. This Account Opening FAQ describes the details:
If you are a new HSBC Direct customer, you can send an electronic bank-to-bank transfer from a non-HSBC account, or mail us a check or money order. If you are an existing HSBC Direct customer, you can fund your HSBC Direct Online CD using one of your existing HSBC Deposit Accounts or mail us a check or money order if you wish to fund your HSBC Direct Online CD from an non-HSBC account.
One thing I don't like about the account opening process is that the interest rate doesn't lock at the time of the application. According to HSBC, "your account will receive the interest rate and annual percentage yield in effect on the date it is opened. CDs cannot be opened before the application process is finalized." This delay can cause a problem if rates drop as one reader described:
I opened a 6-month CD at HSBC based on an excellent advertised interest rate. Before I funded it I double-checked the rate. They decided to lower the rate substantially while the funds were being electronically transmitted, and they locked in my CD at a 3.1% APY instead of the advertised 4%.
To reduce the chance of this happening, you may want to fund it using money in your HSBC Online Savings account or Online Payment Account. When I posted on HSBC's Online CDs in October 2008, some readers reported that the advertised CD rates required new money which means you couldn't use money from your HSBC account to receive the posted rates. I reviewed all the small print today, and I couldn't find anything about this requirement. I also called, and the CSR said there's no new-money requirement for these CD rates.
After you open the CD, you should receive an online document that will list the details of your new CD. Here's what the FAQ states:
you will receive an email with instructions to log on to your Personal Internet Banking account and open a BankMail containing your eReceipt. The eReceipt is a legal document and contains the issue date, the maturity date, and the APY of your HSBC Direct Online CD.
HSBC Direct's online no-minimum savings account is a little disappointing with a rate of only 1.65% APY as of 3/31/09. However, when compared to other major online savings account (1.50% at ING Direct and 1.45% at ETrade Bank) it's not too bad. Nevertheless, it's painfully low when compared to their 6% promo in 2007. Please refer to my Online Savings Account review for more details.
HSBC Direct is part of the HSBC Holdings plc which is one of the largest banking groups in the world (see background). The US arm is HSBC Bank USA, N.A. It's FDIC insured. One interesting note is that it currently only has a 2 star safe-and-sound rating (below peer group) at Bankrate.com based on 9/30/08 data.
Thanks to the reader who mentioned these HSBC CDs in the Daily News & Deals Post.
Other High Certificate of Deposit Rates
If you care more about rates than early withdrawal penalties, you can do much better than 2.30%. For top CD rates nationally available, refer to my weekly rate summary. Many of the best CD deals are only locally available. To find the best deals in your state, refer to the index of state CD and bank deals.