Short List of the Top Online Savings Accounts

Last year I put together a short list of the top savings accounts from the strongest banks. I made a new short list in April of this year. I thought it would be interesting to review these and come up with a new list. In this September 2008 post I developed a short list based on the following attributes:

• Bank has at least a 4-star rating (sound) at Bankrate.com
• Savings account yield is at least 3.50% APY
• No significant minimum balance requirements to earn the top yield (under $100) and no monthly fees
• ACH bank-to-bank transfer service

Below shows how the rates and ratings have changed:

Bank               9/21/08     8/02/09   Bankrate
                     APY         APY     Rating
FNBO Direct         3.50%       1.50%    3 stars
CNB Bank Direct     3.50%       2.00%    4 stars
OnBank              3.50%       0.50%    3 stars
Union Fed Svg Bank  3.75%       1.85%    1 star

When I reviewed these in April, OnBank's rate was 0.75%. It's hard to believe they reduced their rate again. OnBank (a division of M&T Bank, N.A.) was a rate leader for much of 2008, but the rate started plummeting in January 2009, and it's now near the bottom for rates. Union Federal Savings Bank's rates have held up fairly well, but its rating for safety and soundness has plummeted from 4 stars last year to 1 star this year. CNB Bank Direct has held up the best in terms of rates and financial ratings.

Below is the status of my April list. CNB Bank Direct was the only one to remain on the list, and it continues to hold up the best.

Bank                  4/19/09     8/02/09   Bankrate
                        APY         APY     Rating
CNB Bank Direct        2.20%       2.00%    4 stars
iGObanking.com         2.12%       1.67%    3 stars
Grand Yield Direct     2.05%       1.70%    4 stars
Bank Provident Online  2.00%       1.65%    4 stars

New List and New Criteria

I've decided to change the criteria a little. I'm going to include accounts that have rate tiers. The APY will be based on a $10K balance. I'm still going to exclude accounts that have monthly fees for balances under a certain amount. The other change is to include banks and credit unions with a Bankrate rating of 3 stars (performing) rather than only 4 stars (sound) and above. Note, these ratings are now based on 3/31/09 financial data and they change each quarter. The FDIC has its own confidential ratings, so it's still wise to stay under the FDIC limits.

The following are my new criteria:

• Bank has at least a 3-star rating (performing) at Bankrate.com
• Savings account yield is at least 2.00% APY for a $10K balance
• No monthly fees regardless of balance
• ACH bank-to-bank transfer service

As we learned with OnBank, there's no guarantee that the competitive rates will continue. I've included links and dates of my first reviews for each account. You can use these to review their rate histories.

One important feature of online savings accounts is the capability to initiate electronic transfers (via ACH) to your other accounts at other banks. This makes it easy to fund the account and to transfer the money out if rates should happen to fall. The quality of the ACH service can vary. The best ACH services provide fast transfers (1 day), allow multiple links to other accounts and have no significant limits to transfer amounts. Unfortunately, the only way one can tell about ACH speed is from user experience. Refer to the account reviews for details about the ACH transfer features.

The New Top Savings Accounts - APYs as of 8/02/09:

• 1st Constitution Direct - 2.25% $10K+ (1.60% under $10K) (2.50% 3mo promo) account review, first reviewed 6/05/08, 4 stars @ Bankrate
• Alliant Credit Union - 2.00% $100+, account review, first reviewed 1/30/08, 3 stars @ Bankrate
• CNB BankDirect - 2.00%, account review, first reviewed 8/4/08, 4 stars @ Bankrate
• Discover Bank - 2.00%, $500 min initial deposit, but no fees or minimum balances, account review, first reviewed 7/1/09, 3 stars @ Bankrate

For the 3 of the 4 that have an APY of 2%, my guess about which will maintain the most competitive rate in the long term is Alliant Credit Union. I included the rate history of this account at the bottom of my 2008 review of Alliant Credit Union. The rates have remained competitive for over 3 years. Note, anyone can join Alliant Credit Union via a PTA membership. Refer to the review for more details.

Since CNB BankDirect's parent, The Citizens National Bank of Bluffton, is fairly small, it would seem they wouldn't be able to maintain the top rates for a nationwide account. Late last summer they launched a 6-month 4% promotion, and there were expectations for much lower rates after the promotion ended. But that hasn't been the case.

Discover Bank just recently launched the online savings account. So its questionable if they're serious about keeping a top rate for the long term. They've long offered an online money market account with limited check writing and with minimum balance requirements. This money market rate has been competitive, but it has never been near the top.

Full List of Nationwide Online Savings Accounts

To see all of the best savings account rates, please refer to my weekly rate summary.

If you want rates higher than 3% from a liquid account, your only option is a reward checking account. Unlike savings accounts, it'll require some work. Refer to my high yield reward checking website to find accounts around the nation and to learn more about these.