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Best Place for Your Savings? Reward Checking, Savings Accounts or CDs?

POSTED ON BY

With the recent rate cuts of popular reward checking accounts, you might be asking if reward checking is worthwhile. So I thought it would be interesting to make some comparisons. The two institutions that I'll use in the comparison have been rate leaders over the last few years. For reward checking, I'll use Danversbank's Free Reward Checking. For a top savings account, I'll use Alliant Credit Union. I'll keep it simple and just use the last year to compare the two.

Danversbank vs Alliant Credit Union

As I've been reporting, the top rate of Danversbank's reward checking yield will be falling from 4.01% APY to 3.01% APY on October 4th. This applies to balances up to $25K. Danversbank's reward checking has a long history. I first reported on this reward checking account in April of 2007 when the yield was 6.01% for balances up to $100K. Since that time there have only been two rate cuts: 1) drop to 4.01% APY in April 2008, and 2) the rate cut that takes place next Monday to 3.01% APY. In 2008 there was also a cut to the balance cap. It fell from $100K to $25K. Once nice thing that Danversbank did was to grandfather in existing customers to the original balance cap. One of this blog readers has reported that his balance cap remains at $100K.

Alliant Credit Union has been a savings account rate leader for many years. Back in 2006 and 2007, its rates were a little bit under the rates of the top internet savings accounts. However, when interest rates fell, Alliant's rates didn't fall as much as the others. For example, it held on to a 2.00% APY for longer than most internet banks. It lasted from July 1, 2009 until April 1, 2010 when the yield fell to 1.50%. The last rate cut was September first when it fell to 1.35% APY, and it appears it's going to stay at that rate through October.

In my comparison, I'm going to assume a balance of $25,000 kept at both Danversbank and Alliant from October 1, 2009 to today, October 1, 2010. Here is an estimate of how much interest one would have earned (before taxes) in these two institutions during that time:

  • $1,002.50 at Danversbank
  • $434.38 at Alliant Credit Union
  • Difference: $568.13 more at Danversbank

With Danversbank's reward checking account, one could have made over $568 more than if he or she had kept $25K in Alliant Credit Union's savings account. That comes out to over $47 per month more in interest.

Comparisons for Next Year

How about the future? We can only make guesses about future interest rates. For simplicity, let's assume Danversbank will be able to keep the top yield of 3.01% for the next year. And let's assume Alliant Credit Union will keep its 1.35% APY. Here is an estimate of how the interest earned from these two accounts would compare over the next year:

  • $752.50 at Danversbank
  • $337.50 at Alliant Credit Union
  • Difference: $415.00 more at Danversbank

That $415 more per year comes out to an extra $34.58 per month. The difference won't be as big as it was last year, but it's still substantial.

Other Options: SmartyPig, Ally Bank

There are also other options to consider. There are a few other better savings account options. Of course no one knows if their rates will stay where they are now. Two good choices include SmartyPig and Evantage Bank (and its sister bank AmericaNet). Both have balance caps, but the caps are higher than the cap at Danversbank.

Ally Bank is another one to consider. Its savings account is not quite as good as Alliant (currently 1.24% APY), but you can make a lot more with its 5-year CD which has a current yield of 2.64% APY (I'm afraid it just fell from 2.69%). A 5-year CD would normally not be compared to savings and checking accounts. However, Ally Bank's 5-year CD has a very mild early withdrawal penalty of 60 days of interest (see post). So it's much more liquid than the typical 5-year CD. The benefit over the savings accounts and checking accounts is that once you open the CD, your rate is locked for 5 years.

Here are how the above accounts compare with Danversbank assuming their interest rates hold for the next year, and assuming a balance of $25K (only Ally Bank's CD rate would be guaranteed). The number in parenthesis is the extra interest one would earn at Danversbank.

  • $437.50 at SmartyPig's 1.75% savings account ($315)
  • $500.00 at Evantage Bank's 2.00% money market account ($252.50)
  • $551.50 in Ally's 2.64% 5-yr CD with an EWP after 1 year ($201)
  • $660.00 in Ally's 2.64% 5-yr CD with no EWP ($92.50)

The comparisons become much more complicated for balances over $25K. You then have to weigh the extra work of maintaining multiple reward checking accounts.

Poll Question of the Day

For the poll question for the day: Do you plan to increase your savings in reward checking accounts, savings/money market accounts or CDs? Or perhaps you're planning to grow your investments outside of bank accounts?

  Tags: savings account, CD rates, Ally Bank, Danversbank, Alliant Credit Union, SmartyPig, Evantage Bank

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Comments
28 comments.
Comment #1 by scottj posted on
scottj
I don't think we have seen rates hit bottom yet so for me locking in CD's is the way to go. While I have had some 5%-6%  CD's mature in the last year I have also had some shorter term 2%-2.25% CD's mature and that money went into a few 36 month 3.00% CD's I opened recently. So getting more on them helps make up for what I lost on the 5%-6% ones. 

5
Comment #2 by Anonymous posted on
Anonymous
I still think that emergency money is best in a reward checking and everthing else in a CD. Laddering CD's is the best choice, adding to each CD or taking out if needed as the CD matures. After you make your first ladder go for the highest rate no matter how long it goes. In the past I have gone out 10 years. I went out 7 years on several CD's also. Recently it was 5 years at 3.5% even though I could have made more in a reward checking. I already have 2 reward checking and have enough of an emergency fund. If you are not going to use the money right away go for the highest rate no matter how long. If you are living off the interest and it is not enough then a different decision might be needed.

8
Comment #3 by Anonymous posted on
Anonymous
I suspect that QE2 may result in rates sliding perhaps an other .50-.75%.  Those looking for supplemental income will watch the errosion of their principal base.  Caution is well advised.

3
Comment #4 by scottj posted on
scottj
On my 60 week of 99 weeks of unemployment, The $678 a week has made this crappy rate environment a little more bearable and allowed my principal to grow

2
Comment #5 by Anonymous posted on
Anonymous
Banking Guy wrote:

"""That $415 more per year comes out to an extra $34.58 per month."""

I spend more then $34.58 per month to fulfill the requirements by:

1) Driving costs to make purchases on the debit card

2) Purchasing stuff I don't need to meet the 12 per month requirements

3) Transferring money in and out to satisfy the ACH requirements

4) Using my free time to tend to the above.

17
Comment #6 by Anonymous posted on
Anonymous
It is an absolute no brainer for me that the Rewards checking account is the smart way to go.My cash is totally liquid and available,plus it pays a higher interest rate than ANY current cds (or) savings accounts.As for the costs to maintain the account.......

1). Totally free.

2). Unlike the other person,no driving costs are incured to make my debit purchases.If I did'nt use my card,the purchases would still be made with cash anyway.I never purchase anything that I had not intended to purchase anyway.

3). I don't make even "one" additional purchase per month to meet my requirements for something that I was not going to purchase anyway.I never use the card unless I was going purchase the item anyway with cash.

4). I can easily make 3 debits when I go out for small purchases (such as a cup of coffee at Mcdonalds).

5). I have another cd's interest direct deposited into my Rewards account which qualifies for the ach transfer....simple and painless.

6). For very little effort,I have earned a high interest rate on liquid cash...a no brainer for me.

14
Comment #7 by Johnny (anonymous) posted on
Johnny
The CD rates are poor, the obstacles to the checking accounts are challenging.  Why invest in the USA?  It seems that nations doing vibrant business with China have currencies and CD rates worth the trouble, e. g. Brazil, Australia, etc.

4
Comment #8 by 51hh posted on
51hh
The comparison using Danversbank with Alliant is a bit misleading.  We can always rate hop to another RCA with higher yield.  Of course Alliant account holders can do the same rate hop; but the spread of savings is not that much to make rate-hop worthwhile. 

For example, I am transferring some fund from Danvers to another RCA with 4.75% APY; thus it is not really an apples-to-apples comparison.

Bottom Line: With the low rate for both CD and savings, it is indeed a no-brainer to go for Reward Checking.  For those who think that the requriements are too challenging: Come on, do some physical and mental exercise via RCAs -- it is good for you both from the health viewpoint and from the financial viewpoint.

2
Comment #9 by Anonymous posted on
Anonymous
Just buy some Verzion (VZ)  the stock yeilds 6%, and txt msgs are as good as gold.

2
Comment #10 by dunker posted on
dunker
51hh, there is of course one problem with the 4.75% RCA that you're hopping to.  The bank in question has already let it be known that the 4.75% rate is probably going to drop at the end of the year.  So if it drops a full percentage point like Danversbank just did, you'll be at 3.75% in only three months.  And unfortunately I'll be in the same boat as you. 

You've been at the RCA game for some time and have underdstood that when a 4% account becomes available, you apply immediately, because they in most recent cases they exit the nationwide market quicky.  That means you still have several 4% RCAs, including at least one 4.75% in reserve for when a 4% account like Danversbank drops to 3%.  But someone trying today to find a 4% RCA available nationwide is SOL.

3
Comment #11 by bbug posted on
bbug
Isn't it misleading to only compare balances up to $25,000? If you maintain a balance of $50,000, the calculation would be very different, with Alliant paying in excess of a full percentage point more on the excess.

Bill

2
Comment #12 by Anonymous posted on
Anonymous
Danvers Bank rewards checking falls to 3% from 4 on Mon 4 Oct. I called Danvers when I didn't see it on the rewards checking account listings today (Sat). I opened an account w/ Danvers Fri, but will not finalize it by identifying the microdeposits used by Danvers as a test of the funding account.

1
Comment #13 by Anonymous posted on
Anonymous
Some people are fortunate enough to find a RCA locally in their state that yeilds a high rate,although if a person lives in a state where none is available,it's really a mute point to them.Nationwide RCA's at 4% are really non-existant now.If a person in Texas gets a 4%  rate on a RCA,although it's only available locally,it does not help the person iin another state.The smartest thing to do is search out the best yield RCA in your own state,and hope the rates don't drop to fast.As for Danversbank,they have only had two rate drops on their RCA in the past 4 years.I know of other banks that dropped their rates that many times in the past year.I would feel a lot more uneasy with a bank which has a history of numerous rate drops...even if it currently offers 4%.Plus,Danversbank has grandfathered in the people with high balances ($100,000) after their cap went to $25,000.How many banks would do that ?.Add a five star rating by Bauer Financial,and Danversbank still sounds pretty great from what is available in my state.

3
Comment #14 by 51hh posted on
51hh
Dunker (#10): I have at several backup RCAs: Three with 4.01%, three at 4.51%, and five with 4.75%.  I usually close accounts at 3% or below.  Who knows, Danvers 3% at $100K (I have two) may still look good after a few months.  Thus if the 4.75% ones dropped rate below 4% at 2011, I still can land on the 4.51%/4.01% reserve.

As for the 4% nationwide deal, one just needs some patience, persistency, and innovation.  I shall stop at that:-)  To be honest, I am too tired of applying new accounts, even at 4% or above.  When all my RCAs dropped below 3%, I will simply retire from the RCA world:D 

Note/hint for new RCA applicants: The trick is not to apply when all are applying and it is already heavily discussed (you know that RCA will drop rate soon due to the crowd), but to apply earlier before anybody (e.g., the 4.75% ones) and/or seek those that are hidden gem.  OK, I had better stop before I say way too much. 

2
Comment #15 by Anonymous posted on
Anonymous
51hh (#14): you probably don't live in Nevada...... if you do you must travel a ways to open up these accounts.

1
Comment #16 by 51hh posted on
51hh
Anon #15: No, I do not live in Nevada, but in a state similar to it in terms of (lacking in) RCA offers.  And travel is definitely not in my RCA "toolset."

2
Comment #19 by Anonymous posted on
Anonymous
#16 blog....don't quite understand your comment.You live in a state similar to Nevada that is lacking in RCA deals....but you have great rates on your RCA's ????.And travel is not in your RCA toolset.Sorry.....makes no sense.Please clarify. 

1
Comment #17 by Anonymous posted on
Anonymous
Somebody in another state might find a RCA for 10%......but it really makes no difference if it's not available in YOUR state.Nobody really cares about the great deal a guy got 1000 miles away if he can't participate.To be honest,I could care less if a 4.75% rate on a RCA is available to one guy in North Carolina (or) any other state for that matter if I am not eligible for it in my state.Unless it's a great nationwide Rewards Checking account that is available to EVERYBODY in every state (or) a local deal that somebody is fortunate enough to be eligible for.....it is a mute point.Clearly it all depends on the individual availability in each state.I can only hope that rates go up nationally and 4% rewards checking accounts become available for people in all 50 states so ALL can enjoy the extra income from their RCA's.

1
Comment #18 by Anonymous posted on
Anonymous
As for the blogger who claims to have 5 RCA's at a 4.75% rate.....give me a break....are you for real ?????.Where do you live......Pluto,Neptune,Saturn (or) somewhere else in the galaxy light years from earth.I honestly don't believe ANY state in America has a 4.75 rate on a Rewards checking account.If it does.....I have no doubt it will drop to 2.50 % in the next couple months.Best of luck my friend.

1
Comment #20 by Anonymous posted on
Anonymous
Randolph Bank in North Carolina still offers a 4.75 % rate on their Rewards Checking account.The catch....it's only available to the local residents in the state of North Carolina.So to 49 out the the 50 states.....who cares about Randolph bank ????????. 

1
Comment #21 by 51hh posted on
51hh
Anon #19 and all:

One can use online RCA information (only) and get in on great (nationwide) RCA deals.  Just thoroughly "study" Ken's complete RCA list and try to get on the new RCA offers as quickly as possible. 

Case study: Randolph Bank.  It was offered as nationwide and quickly (within a day or two) limit to in-state only.  Then all the out-of-state accounts got grandfathered.  The point is (like I said before) to get in as early as possible before the crowd move in.  At that time, you might as well forget about it, if you did not apply earlier. 

Please keep this exchange as civil as possible.  We are here to help one another; not to critize one another or debate one another:D

6
Comment #22 by dunker posted on
dunker
51hh, are you married with one child?

1
Comment #23 by Anonymous posted on
Anonymous
I think that #22 is bringing up another point of confusion in the information or incomplete information presented by #21. It has to do with the number of multiple reward checking accounts from the same institutions. Most banks and credit unions limit these accounts to one per customer or one per household. It woud be a lot more accurate and less confusing to readers to just speak of the accounts in one's own name, and not about all the other accounts being managed for other household members. I think everyone has been more than civil in this exchange, and we don't want to restrict the sharing of personal experience. Anonymity should give us impetus to give full disclosure if others are to truly understand what is being shared. Fact is, this strategy of signing up for new rewatd checking offerings and keeping them inactive until other active one's rates go down is nothing new. Its just a time consuming process, and a frustrating scheme to ride the downward trend in interest rates. Most folks outside of this forum don't have the time or desire to do what #21 has done. If it has worked for him, all the better.  But the method and techniques should not be assumed by readers to be secret or for only a few individual. This is not rocket science.  Some are just better than others at playing this reward checking game.

2
Comment #24 by Anonymous posted on
Anonymous
Best Place for Your Savings? Reward Checking, Savings Accounts or CDs? Answer.  None of the above.  The international derivatives banking mafia has decided to destroy the U.S. dollar with QE-2.  Tae your money out of the USA, and save yourself from being wiped out.

 

1
Comment #25 by Anonymous posted on
Anonymous
51hh: Anon #15, sorry I didn't mean to start anything. I understand the point of being ready and moving quickly on Nationally available opportunities which present themselves, and to be honest being new to living on a fixed income, a change which wasn't planned, I am slow and a bit unsure about making moves and hence have watched opportunites come and then go. How was it for you when you first started?

However, part of my living in Nevada comment related to the reality that my water, electricity/gas companies charge a surcharge for using a debit card to pay. No down paying those bills! I wonder if this is a reality and RCA deterent for others on this forum.

Thanks for your posts 51hh. They have provided much valuable insight.

1
Comment #26 by 51hh posted on
51hh
Anon. #15/25:

How did I start with RCAs?

I started humbly when all those savings rates are coming down (e.g., HSBC, GMAC, Emigrant, early 2007).  Danvers (local) was my first endeavor.  Then Dedham Savings; again local.  I hate to move outside my driving distance.  Like you, I found very few oppotunities after both Davers and Dedham rapidly (within six months) dropped their rates.  I ventured out to Rockland FCU, Gloucester, etc.; still local in mass but 1-2 hours away...

Not enough for an acceptable rate, It took a lot of guts (:D) for me to go out-of-state.  Reluctantly, FAB&T (AR) was my first out-of-state one (I got rejected, but my wife got in).  I lost the "local" sense of security.  Then BotS (12 accounts total at one point)...

At the same time, I learned from an RCA expert (from FWF) to seek deeper/richer into the hidden world of RCAs.  The lessons are: (1) It takes time, patience, and some wisdom to find the best RCAs, (2) never fall in love with any RCAs since they all will change rate some time in the future, (3) It does not take much to switch banks, and (4) Share RCA information very discreetly and prudently.  Following the principle of Lesson #4, I will leave all other lessons to ponder:-)

The point of my post to you is to encourage you to weigh your own situation carefully and do not proceed (with RCAs) unless you are absolutely comfortable with it.  It is your money and you are the best manager for it.  So all my information posted here and other posts are meant for information and input only. 

For others: As other posts indicated, I have no intention to reveal my personal life and experience in an open forum.  Some questions are irrelevant and unnecessary.  It suffices to say that some banks allow multiple accounts and some only one, and some change rules afterwards.  it is of little significance how many are in a household.  And yes, I did take advantage of my family members when necessary and beneficial.

And I fully understand that "there are no good deeds go un-punished":D

BR.

     

6
Comment #27 by Rebecca (anonymous) posted on
Rebecca
To #5, the idea is not to go out and spend money just to get the bonus!  But when you are making a purhcase ALREADY, you can figure out how to make it work for you.  For example, my fiance and I both have RCAs, so we will split the restaurant bill so that we each get credit for a transaction.  Randolph Bank (the 4.75% one in NC) only counts transactions over $5, so when I spent $4.83 at the drug store, I took $10 in cashback to ensure it was over $5.  (I called the bank and confirmed that it counts to do that.)  At the end of the month, you might find that you are one transaction shy of what you need.  That's when you go out and buy a soda (or if it's Randolph, stock up on toilet paper, laundry detergent, etc.) just to get that last transaction because spending the $1-$5 is better than forfeiting all that interest!

1
Comment #28 by Rebecca (anonymous) posted on
Rebecca
By the way, for the NC people -- Crescent State is 3.75% and lets you have 2 accounts, so you can have up to $50,000.  It is more work (basically, I don't end up using my credit card at all because I have so many debit transactions to make) but worth it.  If you do go with Crescent State, note that the requirement is for direct deposit or "auto debit" where auto debit MUST be ACH (paying your bill from CS website doesn't count, but the reverse does).

1
Comment #29 by 51hh posted on
51hh
#28: One debit transaction short: Just do a debit (with pin) transaction at gas station; the turnover is immediate for debit.  Why waste on a soda, whcih is unhealthy anyway.

The general idea is good.

3
Comment #30 by scottj posted on
scottj
Only have 3 RCA's now and need to do 32 transactions a month, None have mins but try to do at least $5 each. Most are done getting gas, Go to pump and and do three $5 purchases at a time. Sure I could use my 5% gas card but we are talking about less than $8 in lost rewards a month. Helps that I have a very thirsty car that only gets about 8mpg

1