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Another Rate Cut at UFB Direct - Lessons for Rate Chasers?

POSTED ON BY

UFB Direct

When UFB Direct made its first rate cut on its Airline Rewards Savings account on January 18th, there were hopes that the rate would remain steady for a while. That didn't happen. There was just another rate cut yesterday which reduced the rate from 0.90% to 0.85%. The rates have fallen quickly in February after that first rate cut in January. You can see below how the rates have fallen over the last five weeks:

  • 8/04/11 - 1.30% APY
  • 1/18/12 - 1.10% APY
  • 2/01/12 - 1.05% APY
  • 2/07/12 - 0.95% APY
  • 2/13/12 - 0.90% APY
  • 2/22/12 - 0.85% APY

I was always worried UFB Direct would disappoint us. UFB Direct is a division of BofI Federal Bank (used to be Bank of Internet USA). BofI's savings and money market accounts don't have a history of being long-term rate leaders. One example was BofI's Advantage Savings Account which it first introduced in July 2009 with a 2.50% APY. As a comparison, ING Direct's Orange Savings account was paying 1.40% APY and Alliant Credit Union's savings account was paying 2.00% APY. In July 2010, BofI's Advantage Savings Account rate had fallen to 0.81%. As a comparison, ING Direct's Orange savings account rate had fallen to 1.10% APY and Alliant's savings account rate had fallen to 1.50% APY.

Bank of Internet and its rate cuts aren't unique. We've seen many other internet banks that start out as rate leaders but after a year or two, their rates become average or below average.

Here are some examples of rate leaders that didn't stay on top. There are many others. Feel free to list those in the comments.

There have been a few internet banks that have kept close to the rate leaders for at least two years. Here are three that are still near the rate leaders:

Sometimes internet banks have made comebacks with their rates. They started out several years ago as a rate leader. After a year or two, they fell to average or below average. Then after a couple of years, they come out with new competitive rates. These are often just promo rates in an attempt to get back some of the deposits they have lost. Three recent examples include:

Other internet banks have remained fairly competitive for several years. They rarely have been near the top, but they also have rarely been near the bottom of internet banks. Some examples include:

Lessons for Rate Chasers?

If you want a savings account rate leader, you should probably expect to switch banks at least twice a year.

New internet banks or savings accounts often remain near the top for several months. Those who got in early at UFB Direct were rewarded with 5 months of a top rate. The same has been true with MyBankingDirect. I'm sure that was the reason many jumped on TIAA Direct's new savings account. Unfortunately, many readers have not been able to open accounts (see review).

The easiest solution would be to just go with a near-rate-leader like Incredible Bank and Alliant Credit Union. However, it should be noted that they have been slowly moving down the rate leader list. Alliant Credit Union has a longer history, so I think it has a better chance of remaining a long-term winner.

Another strategy is to use reward checking accounts. You can get higher rates with reward checking accounts, but there are typically balance caps and monthly debit card usage requirements. Bank of Internet's Rewards Checking account is one exception. There are no balance caps. However, its rate isn't much better than savings accounts. The rate remains 1.25% APY (as of 2/23/2012). This rate hasn't changed since it was launched in July 2011 (see my review).

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.

What's your strategy of earning the best rates with internet savings accounts?

Searching for the Best Rates on Liquid Accounts


  Tags: savings account, UFB Direct, checking account

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Comments
10 Comments.
Comment #1 by Anonymous posted on
Anonymous
I got into this great rate in August.  Only lasted for 6 months, but I think it was worthwhile.  Big disappointment when rate dropped!  Pulled big chunk of money out, and put it into "old" reliable Alliant CU.

2
Comment #2 by Lillian (anonymous) posted on
Lillian
I adore Alliant Credit Union.   There service is impeccible and their website works in every regard.  I highly recommend them.  Many credit unions are "antiquated".  This is not the case with Alliant as they are cutting edge.

6
Comment #3 by Anonymous posted on
Anonymous
Banks and credit unions need deposits to fund their mortgages, loans, credit cards and facilities - but there is no advantage to them to have too much on deposit. They are constantly evaluating their rates to get the right balance between deposits and loans. A new institution offers a higher rate than competitors to get their business rolling. This happened even when times were good. 

3
Comment #4 by Anonymous posted on
Anonymous
I don't have an account with any of the banks listed in the comment post and my current rate with a local bank is higher than theirs.  Shifting money around when the difference becomes less than 1% betweeen banks is a waste of time and effort.

5
Comment #5 by Apache posted on
Apache
#4:  It all depends upon how much money one is shifting around.  If one bank is only giving 1% and one has $200,000 that is $2,000 a year on interest.  An extra .75% (1.75%) at another bank can give you $3,500 yr. That extra $1,500 is worth it to me especially if one is adding it to other interest one needs for income.   We all have our own special criteria when it comes to what we are searching for.

6
Comment #6 by Pablo Savin (anonymous) posted on
Pablo Savin
Yes, it is I, Pablo Savin. One percent is a big deal when a large amount is in the picture, I agree. I have flown out of state for good rates with a one percent change. Using reward points. My friends call me a CD ****.

1
Comment #7 by Anonymous posted on
Anonymous
We used to be big fans of online savings accounts but we've given up due to the low rates.  We are instead buying dividend stocks from stable, well-known companies.  We will still keep money in the online savings accounts for safety and diversification, but won't add any more money to those accounts until the rates go up.

1
Comment #8 by Apache posted on
Apache
Pablo:  Good for you!  I have bought CDs from out of state but prefere to "drive" to those I can get to in one day and back for a better return.  I think a lot of us belong to your "stable" :).

2
Comment #9 by Anonymous posted on
Anonymous
As I suspected, UFB is yet another veiled scam by the notorious parent Bank Of Internet to get our money.

They have long been the sleaziest, most incompetent "virtual" bank on the net.

Buyer beware...

2
Comment #11 by Anonymous posted on
Anonymous
THE UFB RATE HAS FALLEN AGAIN!

IT IS NOW DOWN TO .80%

IT SEEMS TO BE DROPPING .05% EACH WEEK!

I DO NOT KNOW WHY I WAS TOLD THEIR INITIAL RATE WAS NOT A TEASER RATE BECAUSE THAT IS WHAT IT APPEARS TO HAVE BEEN.

THAT IS WHY I AM CLOSING MY ACCOUNT TOMORROW.

 

2