Update on TIAA Direct and Its Savings Account
When TIAA-CREF launched its new internet bank TIAA Direct last February, the launch didn't go smoothly. Many readers tried to apply for the TIAA Direct 1.25% savings and money market accounts. Some were told that only TIAA-CREF employees were eligible to open accounts. Several readers who applied were rejected. These problems may have been due to the bank not being completely prepared for a popular account. It appears improvements have been made. The bank's FAQ now states that "Our accounts are available to U.S. citizens and permanent residents of the 50 United States and the District of Columbia who are at least 18 years old and have a valid tax identification number." In addition, a few readers who were rejected in February have reported success in opening accounts. Here's one comment from such a reader:
I had the initial account denied experience in early march, got a vague letter, call them up. They could not explain letter or denial. Said to reapply, which worked just fine. Account, set-up, funded it with an ACH transfer. My FICO is 790, and I am definitely a rate chaser (have five accts opened in the last year or so).
I was impressed that they have US Passport as ID coded into their application process. Most online banks have something of fit if you use a US Passport as ID.
However, more improvements are still in the works. An important one is payable-on-death designations. I spoke with a TIAA Direct CSR yesterday, and she said they are still working to allow beneficiary designations. So customers still can't list beneficiaries for their TIAA Direct accounts. I don't know why this is taking so long.
How Long with the 1.25% APY Last?
I also asked the CSR if she had any idea how long the 1.25% APY may last. She claimed not to know. It's subject to change at anytime. It has been 7 weeks since I first reported on the 1.25% APY. How much longer will it last? I looked at the history of three internet banks and how their rates changed after they launched. I excluded internet banks that offered a rate guarantee. I also excluded periods when the Fed was changing the Fed funds rates.
E-LOAN grabbed attention when it launched its internet bank in September 2006. Its 5.50% APY was well above what other online banks were offering. E-LOAN did its first rate cut in December 2006, but the rate stayed competitive at 5.38% APY.
I first reported on Colorado Federal Savings Bank online savings account in November 2009 when it was offering 1.70% APY. This rate was cut to 1.50% APY in February 2010.
The most recent case is UFB Direct, the new internet bank created by Bank of Internet USA. UFB Direct launched in August 2011 with savings account paying 1.30% APY. That continued until January 2012. By the end of February, the rate had fallen to 0.80%.
One thing that is certain is that TIAA Direct will eventually be cutting its rate. I think the best we can hope for is that the 1.25% APY will last well into this year. Hopefully, they will keep it competitive. Its CD rates are a little low for internet banks which leads me to believe the savings account rate may eventually fall below the rates of ING Direct.
For more details about TIAA Direct, please refer to my first TIAA Direct savings account review.
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