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DollarSavingsDirect Savings Account Yield Falls to 3.50% - Alternatives?


Update 3/3/09: Rate has fallen to 2.50% APY.

DollarSavingsDirect lowered its savings account yield today from 4.00% to 3.50% APY. They had avoided a rate cut longer than any other major online savings account. The yield had been 4.00% since October 8, 2008. Emigrant Bank launched DollarSavingsDirect in early August 2008 with an APY of 3.75%. In addition to the savings account rate cut, the 16-month CD rate also was cut. It's now 3.25% APY (down from 3.50%).

Now the interesting question is what plans does Emigrant Bank have for DollarSavingsDirect? The launch of DollarSavingsDirect was a little strange. DollarSavingsDirect is basically a copy of EmigrantDirect which was Emigrant Bank's first online savings account. EmigrantDirect started in 2005 with a very competitive interest rate (almost 1% higher than what ING Direct was offering).

It would have been better from a customer-point-of-view if Emigrant Bank just raised rates at EmigrantDirect instead of creating DollarSavingsDirect. But by creating a new online bank, it could attract new deposits without having to pay higher interest to existing customers. Existing customers were free to open new accounts at DollarSavingsDirect, but I bet many didn't take the time to do that.

So now that DollarSavingsDirect has brought in a lot of new deposits, I'm afraid DollarSavingsDirect's rates may become less and less competitive similar to what happened at EmigrantDirect. EmigrantDirect is currently only paying 2.40% APY (recently down from 2.50%). This matches ING Direct's Orange Savings Account yield, but it's far away from the top online savings accounts.

One feature that may help DollarSavingsDirect maintain higher rates than EmigrantDirect is the minimum balance requirement. Unlike EmigrantDirect which pays one rate for all balances, DollarSavingsDirect has a $1,000 minimum balance that's required to earn the top yield. When your average daily balance falls below $1,000 during the statement period, the APY falls to 1.00% (see disclosure). Refer to my DollarSavingsDirect account review for more details.

Alternatives to DollarSavingsDirect?

I still have one bank as of 1/23/09 on my savings account list that's paying 4% on a savings account. It's the small bank Broadway Federal Bank. I first reviewed this account in November 2008 when it was offering 5.13% APY. The rate soon fell to 4.08% APY where it has remained. Like DollarSavingsDirect, it has a $1,000 minimum balance requirement to earn the top yield. However, unlike DollarSavingsDirect, it has a $10 monthly service fee if the balance drops below $1,000. Readers have also reported other issues that you won't see at mature internet banks like DollarSavingsDirect.

Another alternative is the new internet bank Clear Sky Accounts (see my review). It was launched early this month and is paying 3.75% APY. For those who open this account, the rate is guaranteed until 3/31/09. Unlike DollarSavingDirect, the rate applies to all balances of $1 and up.

If you want higher yields from a liquid bank account, a reward checking account is an option. I have a list of 312 banks and credit unions offering reward checking accounts around the nation in my High Yield Checking website. The average yield is 4.45% APY, and there are many offering yields over 5%. The highest yield is 6.31% APY at MidWest America Credit Union (see post). For much of last year, they were offering 7.01% APY on balances up to $25,000.

In my nationwide list there are 36 banks and credit unions offering reward checking accounts that are available nationwide. Out of these 17 are still paying 5% APY or higher.

Like online savings account rates, reward checking account rates have been falling. On the right column of my High Yield Checking Website, dates are included of the last updates. Most of these updates have been rate cuts. These update notes link to the review of these accounts with a history of the rates.

I'm afraid reward checking rates will likely decline just like the online savings account rates. But in the last two years that I've been following reward checking accounts, rates have remained higher on average than the online savings account rates. I described how banks can offer higher rates in these reward checking accounts in this recent post. The debit card usage requirement is a major reason along with the balance cap which is typically $25,000. Refer to my reward checking overview to learn more about these accounts.

Related Pages: DollarSavingsDirect, New York, savings account

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Anonymous   |     |   Comment #1
FYI, DollarSavingsDirect evolved from BancoFortuna, which was Emigrant's attempt to reach out to the Spanish-speaking population.
Geoff (anonymous)   |     |   Comment #2
A reward checking account is not an option for many. It is simply not worth the effort of keeping track of all the conditions. That in itself is basically work.

Also, you point about "Existing customers were free to open new accounts at DollarSavingsDirect, but I bet many didn't take the time to do that." You are right. Instead I moved all of my money to CapitalOne's online savings account.
Anonymous   |     |   Comment #3
Are you concerned about Emigrant's rating? It is only 1 now on bankrate.com.

Could you comment?
Anonymous   |     |   Comment #4
Watch the terms very closely if you take money out. Here's what they say "In the event the average daily balance in your Dollar Savings Account falls below $1,000.00 during the statement period, your account will receive an APY of 1.00%." This sounds to me like you might well get 1% for the statement period if your average daily balance falls to less than $1,000. In other words wait until the end of the statement cycle to pull your money out if that's what you're going to do.
Anonymous   |     |   Comment #5
Re: Anonymous 9:46

Since they are looking for AVERAGE daily balance, you can pull out part of the money now. Keep only a portion to ensure that the Avg. daily bal. is greater than 1000.
Anonymous   |     |   Comment #6
After seeing it here, I opened a Clear Sky account (3 actually). These folks have been great. They allow up to 3 linked external accounts and the ACH transfers are lightning fast compared to ING, Emigrant, and evn HSBC. Not only that, but last Friday morning I made a large transfer into the account and it showed up that afternoon. It also showed as remaining at the bank it was coming from through the weekend for double interest! A transfer out also was completed within 24 hours.

I'm with Geoff...reward checking accounts are too much work to maintain.
Anonymous   |     |   Comment #7
To Geoff:

If you moved your money from EmigrantDirect to CapitalOne savings you only saw an increase from 2.4% to 2.64%. That amount isn't worth the trouble of moving unless you are talking hundreds of thousands of dollars in the transfer. By not moving it to DollarSavings Direct which is 3.5%, you are missing out on a much higher interest payout.
Anonymous   |     |   Comment #8
ONBANK is at 1.90% for their savings account. I'm pulling and putting into Dollardirect at %3.5
Sofa King Frustrated
Sofa King Frustrated (anonymous)   |     |   Comment #9
The problem, as we all know, is that very shortly both Dollar Direct and Clear Sky will have to lower their rate to 3% and below.

There is no way any bank can afford to pay above 3% for a savings account.

And since most every other bank now is paying below 3%, Dollar Savings and Clear Sky will feel that they won't lose all their customers since there won't be anywhere else to go.
Anonymous   |     |   Comment #10
Clear Sky is guaranteed at the 3.75% APY thru 3/31/09. After that, you are probably right. We'll see where it goes then. Doesn't take that long to move money around to one of the other accounts I've had. I generally leave $10 in them in case I go back to them in the future. ING is the only one I completely closed. Their track record has been consistently at the bottom of the list after their initial venture into internet banking.
Anonymous   |     |   Comment #11
I was about to open an account at Clear Sky until i saw on the review they only allow 10k out a day? Is that confirmed and serious?
Anonymous   |     |   Comment #12
There are many banks that limit the ACH transfer amount (especially on the outgoing side in an attempt to deter you from withdrawing too much). Citibank has a similar limit on outgoing and incoming. You would think that since they are a "big" bank, they should allow big ACH limits. But they play "stop the large money funds from moving game".
kenfused (anonymous)   |     |   Comment #13
Hi, where is the part about the 10K per day transfer out limit on Clear Sky?
Anonymous   |     |   Comment #14
Kenfused: I couldn't find it on the FAQ pages, but it is on the interbank transfer page: "To add a new Bank to Bank Transfer, complete the fields below and select Submit. You may submit one inbound or outbound transfer per day. The total dollar amount of the inbound transfer may not exceed $50,000.00, and the total dollar amount of the outbound transfer may not exceed $10,000.00."
Anonymous   |     |   Comment #15
Using another bank's ACH system to pull funds from Clear Sky will let you get around the $10,000 outbound limit they have with their own system. Depending on the bank doing the pull, it will also help you avoid the 1-2 day interest loss that usually results from pushes. But pulled deposits (unlike pushed deposits) are usually subject to an availability hold.
Anonymous   |     |   Comment #16
I asked one bank regarding circumventing another bank's limits on ACH transfers by initiating them at the bank that allows a higher limit. The rep said that the bank with the lower specified limits might block the higher amounts that you are attempting to add/withdraw from their account. This sort of makes sense, but maybe others can verify or debunk this?
Anonymous   |     |   Comment #17
I routinely pull much larger amounts from multiple banks than their own online system will allow as a push. One example is when I pulled $60,000 from Alliant CU even though their own system caps pushes at $10,000. I've heard of a few exceptions, but they are few and far between. (Obviously Dollar Savings Direct is one of those exceptions, since completely prohibit pulls by other banks. So, despite what any CS person says.) I'd be very surprised if Clear Sky actually blocks pulls greater than $10,000. But we still need someone to verify.
Anonymous   |     |   Comment #18
Yield has been lowered to 3.2% apy.
Anonymous   |     |   Comment #19
Yield has been lowered to 3.05% apy.
Anonymous   |     |   Comment #20
Yield has been lowered to 2.65% on savings account as of Sat Feb 21