Internet Savings Accounts - Is Rate Chasing Still Worthwhile?

It's common to see internet banks advertise that they pay 5x more interest than the average bank. But as rates get closer to zero, that's not much of a perk. With the recent rate cuts at several savings account rate leaders, I now only have two institutions which offer a nationwide savings account that pays 1.50% APY or above with no balance cap. As of 8/27/10, Fort Knox Federal Credit Union continues to pay 1.60% APY on balances of at least $50K on its Money Market Share Account, and Palladian PrivateBank is paying 1.50% APY for balances of at least $10K on its savings account. Credit unions often change rates at the start of the month so we'll have to wait and see what happens at Fort Knox FCU. The institutions with rates that have recently dropped below 1.50% include Alliant Credit Union (will be lowering to 1.35% in September), Incredible Bank and Ready Saver

The other nationwide savings accounts with higher rates are either promo rates or rates that have balance caps.

As of 8/27/10, EverBank has a 2.25% rate for the first 3 months on its money market and checking accounts (plus a $75 bonus). The post-intro APY is 1.26% for the money market account (see my EverBank promo review).

SmartyPig continues to offer 2.15% APY but there's a cap of $50K (see my SmartyPig savings account review).

AmericaNet and Evantage Bank continue to offer 2.00% APY on its Mega Money Market Accounts, but these are capped at $35K. Over $35K, the rate falls to 1.00% (see my AmericaNet and Evantage account review).

If you don't mind the monthly requirements, you can still get much higher rates for balances up to $25K at many reward checking accounts.

When Is It Worth Opening a New Account?

If you're keeping a $49K balance at another internet bank with a yield of only 1.15%, is it worth moving your money to SmartyPig? You'll make about an extra $490 on your money over the next year my moving it to SmartyPig. Of course that assumes SmartyPig doesn't cut its rate or reduces its balance cap. After watching so many banks cut their rates this year, rate chasing can seem to be a waste of time.

So that leads me to the poll question for the week. How much extra potential earnings are required for you to open a new savings or checking account? I was going to ask how much higher interest rate would it take, but this doesn't take into consideration your balance. An extra 1% interest rate means much more for a $100K balance compared to a $10K balance. I've stated "potential" earnings since like all liquid accounts, there's no guarantee that the high rate will last. For example, if a savings account has a 0.50% rate advantage over your current account, you may be able to make $50 more in interest over the next year for a $10K balance. However, it'll be less than $50 if the 0.50% rate spread drops during the year. The higher the rate spread, the more likely the rate will fall.