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:
- 4.25% HSBC Direct Online Savings Account
- 4.25% Western Financial Bank Online Money Market Plus
- 4.25% FirstFedDirect Internet Advantage Savings Account
- 4.00% EmigrantDirect American Dream Savings Account
- 4.00% Capital One High Yield Savings
- 3.80% ING Direct Orange Savings Account