After almost six months of being the leader of the savings accounts, UFB Direct has just lowered the yield of its Airline Rewards Savings account from 1.30% to 1.10%. I first reported on UFB Direct and its savings account in August 2011. UFB Direct is a new division under BofI Federal Bank (formerly Bank of Internet USA). I have more details of UFB Direct and the savings account in my UFB Direct savings account review.
When UFB Direct was first launched, I was happy to see its competitive savings account, but I've always been worried that its rates may not remain competitive over the long term. UFB Direct's main focus is airline mileage rewards. I don't think the bank designed this account to be a long-term rate leader. Another reason I had my doubts is Bank of Internet's history. Its savings accounts have never been rate leaders over the long term. Currently, Bank of Internet's high-yield savings account has a rate of only 0.80%.
It should be noted that 1.10% APY is still competitive. That yield is tied with Incredible Bank's money market yield as the highest non-promo yield from a liquid account (without activity requirements or small balance caps). However, I have my doubts that it will remain near the top over the long term.
Another alternative to consider is Bank of Internet's Rewards Checking account. This yield continues to be 1.25% APY for all balances (as of 1/18/2012). This has remained the same since last July. With UFB Direct's rate drop, this Rewards Checking account now makes sense. The downside of the Rewards Checking account is that, like any reward checking account, you have to qualify for the top rate by performing certain activities. I have the full details of the monthly requirements in my Bank of Internet Rewards Checking review. As I mentioned in that review, you can easily get higher rates with reward checking accounts at other banks. However, those rates are typically capped for balances of $25K or lower.
Unlike UFB Direct's savings account, Bank of Internet's Rewards Checking account appears to be designed to be a rate leader as compared to liquid accounts at other internet banks. So I think there's a good chance that it will remain a rate leader over the long term. However, we have seen rate cuts on all reward checking accounts. So there's no guarantee that Bank of Internet will be able to maintain this rate especially for all balances.
If you feel it necessary to keep a large amount of your savings in liquid accounts, falling rates will continue to be a risk. It's rare for banks or credit unions to remain rate leaders over the long term. They can stay competitive like Alliant Credit Union, but they probably won't be on top. So if you want to maximize the interest on your liquid accounts, you have to be prepared to move your money to new accounts at least twice a year. Even that can only do so much. For example, one year ago you could get a liquid account with a 1.51% APY on all balances. Now the best is 1.25% APY for a 4-month promo at Flagstar Bank or 1.15% APY at MyBankingDirect and AmTrustDirect.
If you plan to hold a significant amount of money in liquid accounts because you don't want to be locked into long-term CDs, you might want to consider CIT Bank's 2-year Achiever CD with a minimum deposit. If rates keep falling, you can fall back to this CD by making one unlimited add-on deposit. I have more details in my CIT Bank Achiever CD review.