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Savings Account Leader for 2006?


Happy New Year! For 2005, I would say EmigrantDirect had the highest no-minimum savings account rate for most of the year. Even though it's not the highest now, it was on top more often than the others. Will this change?

At the start of 2006, there are now 3 online banks offering no-minimum savings accounts with rates 0.25% higher than EmigrantDirect's 4.0% rate (HSBC, Western Financial Bank and FirstFedDirect). EmigrantDirect's rate is the same as Capital One and only 0.20% higher than ING Direct.

My guess is that EmigrantDirect will still be the leader for 2006. Perhaps EmigrantDirect doesn't need to worry about deposits so there may not be an incentive to be the highest. This looks like what happended with ING Direct. Once you become established, you can focus on profits rather than reputation. But I still think EmigrantDirect wants to have the top-rate reputation. If that's true, we should see a 0.50% increase some time this month.

Another question is how many other banks will get into this game? Just last month First Federal Bank of California started an internet division called FirstFedDirect which is now offering a no-minimum savings account with a rate of 4.25%. I wouldn't be surprised to see several more banks getting into the Direct Bank game.

Perhaps we'll also see some credit unions getting into direct bank game. Sunmark Federal Credit Union started an internet division called RateEdge.com which has a no-minimum savings account that is currently at 4.25%. The credit unions still have to maintain their field of membership, but they should be able to benefit from the low cost structure of internet banking allowing them to offer better rates. In fact, credit unions should be able to offer rates better than these online banks since they are non-profit institutions that are taxed less. I've emailed the president of my local credit union about RateEdge.com and asked if he could start something similar. He replied and was very interested in this. I recommend everyone do the same with your credit union. The more competition, the better the rates.

Here's a list of the top no-minimum online savings accounts:
  |     |   Comment #1
Strangely, FirstFedDirect states on their site that the offer excludes California residents. Hmmm....
Banking Guy
  |     |   Comment #2
Yes, that seems to be correct. Perhaps the bank is concerned about hurting business at the California branches. Or perhaps it didn't want to have its California customers demand similar rates through the branches.

Emigrant Savings Bank didn't have such a restriction for New York residents when it started EmigrantDirect.

I do think it's an unwise decision by FirstFedDirect.
  |     |   Comment #3
None of the banks have yet altered the rates for the New Year yet. I guess that will come later today or by tomorrow morning.

EmigrantDirect is led by Howard Millstein, a billionaire democrat who is very philantropic so its possible that since he built that high marketshare, he will just keep rates as is because he feels an obligation to his employees. I remember I had dealt with VirtualBank in the past who was kinda similar in many senses. They had the best rates when I was with them. They then sputtered out and became in the bottom of the pack, even WORSE than ING. There appears to be no such thing as someone who will always be on the top no matter what. Its always the same:

When you need money you drive rates high. When you fill those coffers up you start pulling back.

The question is, is EmigrantDirect's days of the higher rates done and who will be the leader for 2006 on an overall basis. I hope this week will give us a better indication of what is going on.
Banking Guy
  |     |   Comment #4
Interesting viewpoint about E.D. and its CEO. Yes, 2005 was very successful for it in terms of deposits. So there's probably not much incentive to raise rates. The only thing that might help change things if there are many customers who'll transfer their money out. But are there enough rate chasers to make a difference?
  |     |   Comment #5
HSBC: I noticed the following and makes me wonder why I must be charged $3.00 for outgoing transfers:

"Bank to Bank Transfers fee"
No transaction fees if you transfer money into your HSBC accounts from your non-HSBC accounts
A $3.00 transaction fee will be charged for each outbound transfer from your HSBC accounts to your non-HSBC accounts
No transaction fees will be charged for HSBC OnlineSavings, Domestic Private Banking or HSBC Premier customers"
Banking Guy
  |     |   Comment #6
I don't know why HSBC has this in the terms of the Online Savings account. It has caused confusion for many people.

The last sentence excludes the OnlineSavings Account from this $3 fee. So you shouldn't have to worry about outgoing transfer fees if you just have an Online Savings account.

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