Best Bank Account Interest Rates - Summary for October 16, 2010

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Oct 16, 2010 - 7:29 PM by Ken Tumin

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Yesterday's report on inflation that showed inflation for September was slightly below expectations gave the Fed yet another bit of justification for implementing a new round of Quantitative Easing (QE2). This will likely entail the purchasing of long-term Treasury securities with the intent of driving down long-term interest rates. Not everyone thinks QE2 will be useful for the economy.

For those wanting to learn more about QE2, the speech given this week by Kansas City Fed President Thomas Hoenig is very informative and straightforward. He described why some think QE2 would be beneficial:

Proponents of QE2 argue that it would provide a near-term boost to the economy by lowering long-term interest rates while raising inflation. These benefits would arise from the purchase of U.S. Treasury securities, which would lead to lower U.S. Treasury and corporate rates.

Most of his speech detailed the potential problems and economic risks of QE2. He also mentioned the concerns that we have long worried about:

These are difficult times, no doubt, and it is tempting to think that zero interest rates can spark a quick recovery. However, we should not ignore the possible unintended consequences of such actions. Zero rates distort market functioning, including the interbank money and credit markets; zero rates lead to a search for yield and, ultimately, the mispricing of risk; zero rates subsidize borrowers at the expense of savers.

Hoenig has been the only one at the FOMC this year who has voted against the zero interest rate monetary policy. Unfortunately, Hoenig won't be at the FOMC next year, but there will be three new voting members next year who share many of Hoenig's viewpoints.

The Fed funds futures continue to show little expectations for Fed funds rate hikes next year. However, the implied probability of a higher Fed funds rate by next June did inch up slightly from last Saturday (from 5.8% to 6.2%). But it went down for next September (from 17.3% to 15.9%).

The FDIC was back in action yesterday with 3 bank closures bringing this year's total number of failures to 132.

Savings Account Rates

One bit of good news is that there were no banks or credit unions on my list that cut their savings account rates this week. If you're looking for a new savings account, you'll want one that does not only have a top rate today but will maintain top rates in the future. For the last two years I've been coming up with short lists of savings accounts that I think have a good chance at this. I haven't been too successful. Several that were on my past lists didn't keep their rates highly competitive, and some didn't even keep their rates moderately competitive. Nevertheless, I'm trying again with a new short list. The four on my new list include SmartyPig, AmericaNet/Evantage Banks, Alliant Credit Union and Discover Bank.

Rate Hikes:

  1. None

Rate Cuts:

  1. None

Certificate of Deposit Rates

The news for CD rates wasn't as good as the news for savings accounts. A few rate leaders made cuts this week including Fort Knox FCU, Acacia Federal Savings Bank and Ally Bank. I now only have two institutions offering nationwide 5-year CDs with yields of at least 3%. One is Melrose Credit Union which offers a 3.03% APY and the other is Connexus Credit Union which offers a 3.00% APY. Both have issues. Melrose Credit Union's early withdrawal penalty is harsh and confusing. Connexus Credit Union requires an active checking account. The highest 5-year CD yield for a bank is 2.75% APY at both Sallie Mae Bank and Acacia Federal Savings Bank. Ally Bank's 5-year CD rate inched down this week from 2.55% to 2.54% APY.

In one post this week, I compared the best long-term CDs when factoring in the early withdrawal penalties. Unfortunately, two of the four I compared made significant rate cuts since that post. However, the CD rates of two of the institutions, PenFed and Ally Bank, remain the same (except for a slight 0.01% cut at Ally). Comparing PenFed's 7-year 3.49% CD with Ally Bank's 5-year 2.54% CD shows Ally to be the best deal for early closures for the first 3 years. For a closure after a time between 3 and 4 years, the advantage changes to PenFed. If you close PenFed's 7-year CD early at year 5, the penalty drops the yield from 3.49% to about 2.78%. As you can see above, this is still better than the best nationwide 5-year bank CD. If rates stay low, you can just leave the CD alone until maturity and avoid the early withdrawal penalty of 1-year of interest.

Reward Checking Accounts

Reward checking account rates have held up better than internet savings account rates over the last three years. However, it's not exactly an apples to apples comparison. That's due to the issue of balance caps. Back in 2007, there were several reward checking accounts paying 6% yields for all balances and there were several savings accounts paying over 5% yields for all balances. The average reward checking rate is now between 2% and 3%. That's much better than internet savings accounts which now have an average yield under 1.35%. However, all of today's high-yield reward checking accounts have balance caps. The portion of the balance over the cap earns a much lower rate. A few years ago the average balance cap was around $25K. As I described this week, the cap is falling. How low can this cap go before reward checking no longer becomes worthwhile? This week's poll shows that 15 out of 30 readers won't tolerate caps under $25K.

There was a bit of good news this week for reward checking. I added one bank to the nationwide list. Cattaraugus County Bank now has an online account application, and according to the bank's CSR, people from any state can open an account. The bank's reward checking yield is better than average at 3.25% APY for balances of up to $25K.

To find both reward checking accounts local to you and those available nationwide, please refer to the reward checking section of DepositAccounts.com.

Recap for the Week - Links to This Week's Posts

Banking News/Resources

Savings/Checking Accounts - Nationwide

CD Deals - National

Checking/Savings Bonuses

Reward Checking Accounts

CD and Money Market Deals - Local

The rates listed below are based on Annual Percentage Yield (APY). No minimum balances are required unless noted. MMA next to the rates indicate a money market account. Most MMAs have check writing and ATM cards. Online savings accounts usually lack both of these. Previous weekly summaries are available at this page. Quick Links: Refer to the following links for the savings accounts and CDs that interest you: Liquid Account Rates: Savings Accounts, Reward Checking, Bank alternatives CD Rates: 3 Mo CDs, 6 Mo CDs, 9 Mo CDs, 12 Mo CDs, 18 Mo CDs, 24 Mo CDs, 36 Mo CDs, 48 Mo CDs, 60 Mo CDs, 84 Mo CDs, CDs by state.

Rates as of October 16, 2010

Checking/Savings/Money Market Accounts:

  • Noteworthy Accounts Available Nationwide:
  • Noteworthy Accounts - Local Only

3-Month Certificates of Deposit:

  • Noteworthy Accounts Available Nationwide:
  • Noteworthy Accounts - Local Only

6-Month Certificates of Deposit:

  • Noteworthy Accounts Available Nationwide:
  • Noteworthy Accounts - Local Only

9-Month Certificates of Deposit:

  • Noteworthy Accounts - Local Only

12-Month Certificates of Deposit:

  • Noteworthy Accounts Available Nationwide:
  • Noteworthy Accounts - Local Only

18-Month Certificates of Deposit:

  • Noteworthy Accounts Available Nationwide:
  • Noteworthy Accounts - Local Only

24-Month Certificates of Deposit:

  • Noteworthy Accounts Available Nationwide:
  • Noteworthy Accounts - Local Only

36-Month Certificate of Deposit:

  • Noteworthy Accounts Available Nationwide:
  • Noteworthy Accounts - Local Only

48-Month Certificate of Deposit:

  • Noteworthy Accounts Available Nationwide:
  • Noteworthy Accounts - Local Only

60-Month Certificate of Deposit:

  • Noteworthy Accounts Available Nationwide:
  • Noteworthy Accounts - Local Only

84-Month Certificate of Deposit:

  • Noteworthy Accounts - Local Only

Various Deposit Account Deals

Bank Account Alternatives

Historical Rates from the Federal Reserve (Federal funds, Treasury bills, CD's)


Post a CommentComments
In order of date posted. - Sort by votes
Anonymous

Anonymous - #1, Sunday, October 17, 2010 - 11:01 AM

I love these rate summaries each week.  Thank you so much for posting them.  I realize it takes a lot of time to compile.


11
Jo

Jo (anonymous) - #2, Sunday, October 17, 2010 - 12:45 PM

Just think what the actual inflation numbers would be if food, prescription medication and energy prices were included in the math....Necessities that go up fairly regularly!


5
Anonymous

Anonymous - #3, Sunday, October 17, 2010 - 4:44 PM

Heck no QE2 will not help.  It only helps commodities and gold go higher.  Even the bond market on Friday gave the FED the finger by selling off.  Rates are going higher my friend to call the FED's bluff.


2
bankerjoe

bankerjoe (anonymous) - #4, Tuesday, October 19, 2010 - 10:38 PM

Keeping track of rates is a pain. Especially when there are so many banks. I really like the chart at Banktruth.org that compares the best banks. Narrows down the options according to the account type.


1
Anonymous

Anonymous - #5, Saturday, October 23, 2010 - 9:45 AM

QE2 will totally destroy the Dollar, so what's the point of 0% when the value is taken out of our savings. This is rubbing the savers to accommodate the borrowers who previously defaulted on their obligations to pay back the loans, Rewording the bad elements of our society will create more problems than solutions.

The policy of printing money never solves anything, I thought the FEDs are run by educated people not idiots.


1

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