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Online Banks Battle For Our Dollars


There are two reasons why online banking will give us higher saving rates. First, as this CNN article mentions, online banks don't have the expense of maintaining brick-and-mortar branches. Second, unlike brick-and-mortar banks, competition is national, and it's very easy for people to switch to online banks with the best rates. This creates an environment with great savings rates.

The leading online bank now is ING Direct, but they are facing a growing challenge from new competitors.


One of the main ING Direct competitors the article mentions is EmigrantDirect. Emigrant Direct's savings rate is now 3.5% vs ING's 3.15%. For the last year, ING has been around 0.25% to 0.50% lower than EmigrantDirect. Some interesting stats the article mentions is that Emigrant Direct has attracted over 100K new customers since the online operation started in mid-2004. Also, the average deposit is over $30K.


Another online bank competitor that is mentioned is UK-based HSBC. I just researched HSBC, and they might even be better than EmigrantDirect. Their current savings account yields 3.50% APY with no required minimums. And unlike ING or ED, they also have a free checking account. Some nice featuers of their checking account are that there's no minimum and no direct deposit requirement (the direct deposit requirement seems to be the norm for many free checking accounts). And finally, one last perk: a $50 bonus when you sign up for their HSBC Debit MasterCard with Paypass.

The Day Savers

The article mentions this interesting term describing those who hunt for the best banking deal and move their cash quickly into the next best deal. The article says the ING competitors are attracting more of these less profitable day savers rather than the systematic savers who'll park their money for the long term. Perhaps this is why ING significantly increased their CD rates rather than their savings rates after the last Fed rate increase. Perhaps we'll see ING give up on the savings rate race.

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