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About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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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.

Related Pages: Fort Knox Federal Credit Union, Louisville, Lexington, Bowling Green, Alliant Credit Union, Washington, Chicago, Houston, Denver, Los Angeles, San Francisco Bay, Incredible Bank, SmartyPig, All America Bank, Wichita Falls, Oklahoma City, savings account

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BillF   |     |   Comment #1
I don't believe it makes sense to chase interests rates that are only a few basis points higher than another bank's.  So, for now, I try to find a bank that has remained stable and reasonably competitive over time and scores highly in such areas as customer service and fast, unfettered ACH transfer capability.
Steve   |     |   Comment #2
Based on the extremely low rates being offered, it just isn't worth the time and trouble to open and close accounts for an extra $50 or $100 a year.  Reminds me of my parents running around to different banks to get toasters, blankets, etc., for opening a new account of at least $25.  How many blankets and toasters do you need?  I've decided to just wait it out and keep unneeded cash in a credit union paying about 1%.  Far easier than filling out forms and having to track multiple accounts.
Ian   |     |   Comment #3
The interest rate chasing game is over. The rates are so low it is not worth shopping for minimal differences. We are not even close to matching the inflation rate. I am moving money out of my liquid account and putting into some mutal funds and stocks. With the market down recently, I think this is a great buying opportunity.
51hh   |     |   Comment #6
I voted for at least $200 annual gain to move funds.  That is about 1% in Reward Checking Accounts.  Not worthwhile to be in online savings at all! 

The market is in long term (5 years) bear, thus coming back to water at this time is to catch a falling knife.

I will stick with RCAs and do rate hopping when necessary (at least 1% being the trigger point) for the next 1-2 years.
adityanm   |     |   Comment #8
All my cash is in RCA and a little in Alliant for ACH. There are still plenty of RCA and utility bills to meet debit card requirements. As soon as I get a utility bill I pay it off in one sitting.
Todd   |     |   Comment #9
That's funny, #2 Steve. I'm retired and just made some toast on my World Savings toaster and have several blankets from another bank we still use.
Anonymous   |     |   Comment #10
I'm in the process of cutting down on the number of accounts that I have.  Less hassle, and fewer calls from the banks trying to sell me additional products and services.
Anonymous   |     |   Comment #11
Lets face it, we have been dealt few left over crumbs, not worth fighting over it.
Anonymous   |     |   Comment #14
Certainly foolish to rate chase at this time.  Just not worth it.  Also not worth it to keep money in the U.S.A., when banks elsewhere in the world pay much higher rates for U.S. dollar deposits.  That is, assuming you still want to keep your money in the dollar.  I don't.
Anonymous   |     |   Comment #16
Capital One Bank (in NY, at least) has been paying 1.30% on savings accounts for at least the last 6 months. Check with banks for required minimum deposits.
Robert Prather
Robert Prather   |     |   Comment #19
SmartyPig's accounts just got a little less exciting.  A change in their Truth in Savings Disclosure: "Interest is compounded and credited quarterly. If you close your Savings Account, only interest accrued up to the date of account closure will be credited to your account."  (Interest used to compound daily.)
Anonymous   |     |   Comment #20
This poll is poorly constructed.  What if I'd switch for less than $50?  More than $500?  What if I don't chase rates at all?

I am sure that there are considerably more than 50 people here, but some of them don't have an option that they can choose.  Some of those who have, I am sure, chose an inappropriate one because an appropriate one was not available to them.

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