Looking for a Better APY
August 18, 2010 9:09 PM   Subscribe

I'm considering an online bank for the higher rates of return available on a large sum of cash that I've been saving, but I'm sort of a Luddite, and I would appreciate your input.

Basics: U.S. citizen looking for a U.S. FDIC-insured bank or two that pays more interest than the low 0.8% or so I'm getting with Citibank. I currently bank online with Citi, but they have physical branches where I live, and I find that reassuring.

I've been stockpiling cash 1) in case I lose my job; 2) because I don't want to invest in the stock market right now; and 3) because if I don't get canned at my next review, I'm considering buying real estate to take advantage of the low mortgage rates (I've been quoted 4.6% on a 30-year fixed). Right now, I have about $200,000 in cash sitting around. By the New Year, I expect to be around the FDIC insurance limit, so I need to move some cash around, in any event.

Bankrate.com lists some banks offering yields of around 1.5%; Depositaccounts.com even lists one--Smartypig.com--that has some funny breed of a rainy day account that's paying 2.15%, though there are elaborate hoops to jump through, and the high yield is available only on the first $50,000.

Does anyone here spend time chasing good bank yields? Is it worth the hassle of opening and closing the accounts as rates change? (Once when I opened an account, the bank had misplaced or mismatched my W-9 and ended up locking my account (about $75,000 at the time) under the Patriot Act's money laundering provisions for the better part of three weeks, which was harrowing.)

Are there particular banks to avoid? Banks that are great? Bankrate has some sort of rating feature, but it seems to be some measurement of deposits or Tier 1 capital, and not necessarily customer satisfaction. Hidden fees? Some of these online banking sites are very difficult to navigate and compare (launching in their own browser windows, or using popups or annoying mouseovers). Is there something like the standard mandatory credit card disclosure to make fast comparisons?

Anonymous because I'm talking about my precious money (which in turn is relevant to deposit minimums on some jumbo money market accounts, if anyone has information on those).
posted by anonymous to Work & Money (18 answers total) 5 users marked this as a favorite
I just transfer my savings to a currency where the risk free overnight rate is respectable. Yes there is fx exposure but for example AUDUSD is yielding 4.5%.
posted by H. Roark at 9:45 PM on August 18, 2010 [1 favorite]

I use ING directs' Orange savings accounts & CDs. For awhile they had the best rates, but now they are just so-so, but still better than your 0.8%

Really easy to use. I was able to setup an account and have autodeductions setup in no time.
posted by cuando at 9:46 PM on August 18, 2010

ING. However their rates currently suck (but that's everywhere now). But they are awesome and their customer support is excellent.
posted by special-k at 10:00 PM on August 18, 2010

I can't speak to any personal experiences since I don't have anywhere near enough money to make rate chasing worthwhile, but I did find this interest rate chaser calculator that might be useful. (If you click the banking tag at the bottom of the post you can also find that blogger's posts on bank deals which may be helpful to you.)

I had an account at ING Direct for a while, and they were fine. Nothing bad or good to say about them. They do have a feature where you can make sub-accounts under your main account, which is useful for segmenting funds for different purposes. After ING, I consolidated my banking services at my local credit union since they had a pretty high interest rate for my balance tier. You may also wish to check at your local credit union, as sometimes they do offer better rates than banks.
posted by calistasm at 10:00 PM on August 18, 2010 [1 favorite]

I have an ING account. One word of warning, if you ever ever ever envision yourself needing to make a large withdrawal on short notice, be warned that they have a daily limit, and they DO NOT DO WIRE TRANSFERS.

I had a family member who urgently needed a large loan. I was told by customer service that I can walk into any brick and mortar bank (obviously not ING) and get up to $5000 out of my ING Electric Orange account. In a pinch they said they could increase that to $25,000 (or maybe it was $10,000, I don't recall, but it was not enough for this particular need). I wanted more than that, same day, and it was not possible. As this is not something that happens frequently to me, I don't know what, if any, limitations there would have been if I attempted a withdrawal like this from an account at a local brick and mortar bank, however I do believe that a local bank would have permitted a large wire transfer to another party.
posted by ellenaim at 10:52 PM on August 18, 2010

I use Ally.com, which currently pays 1.29% on regular savings. I've been pleased with them. I'm not the kind to constantly chase the very highest rates, but they are generally pretty good when I check rankings.

In my experience, online banking usually involves a slight delay in getting money when you need it. Keep some money at a local brick-and-mortar institution where you can get it immediately if necessary.
posted by pmurray63 at 11:21 PM on August 18, 2010

When I left my last job and took a large sum in severance pay, I put it offshore at AngloIrish Bank's Isle of Man operation. They were at the time offering over 6% (!), with the provisos that you had to give 7 days' notice (calendar, not working days), and you could only withdraw to a single, specified account in exactly the same name (in other words, my normal current account here at home). When Irish banking went through a hard time, the interest rate dropped in steps to about 2.5%, but that was still a lot better than anything I could find where I live (Italy). Now that particular type of account is no longer available there, but you might be able to find it somewhere else if you shop around - not 6% these days, of course, but certainly considerably more than anything onshore. As long as your planning can stand the statutory notice of withdrawal period. I'm sorry I can't recommend anything specific, because I've now used up that money (it was put aside to pay my son's way through university) and don't have another nest-egg to invest, so I haven't explored it further.
posted by aqsakal at 12:36 AM on August 19, 2010

I love HSBC's internet banking. They offer an "online payment account" in addition, which is separate from your online savings account, and which they provide a debit card for, with Mastercard logo. This is fantastic, as transfers into this account from your savings are 100% instant, AND they refund ATM fees. What's this mean? Full liquidity, and instant access to a decent chunk of your cash (up to $500, I think, maybe more) with minimal hassle.

Transferring in and out takes a few days, but that's all online banks, since they make money on the float. (Telling you it takes longer than it does, collecting interest on it without having to pay you interest.)

Nice thing is, no minimum balance for interest, competitive rates, a smart website that lets you do some cool stuff with automated transfers, and no fees, ever.
posted by disillusioned at 1:59 AM on August 19, 2010

Nthing ING.

Even though they're not brick and mortar, it's really easy to get a hold of someone to get something fixed, and even though the rates aren't so good at the moment, they're still better than a lot of places.

My husband and I use ING for our joint savings account and keep separate checking accounts at brick and mortar banks and we transfer money among all three as needed.
posted by zizzle at 6:21 AM on August 19, 2010

All the savings accounts pay pathetic rates now. What's worse is that they will change them at will. I have ING and they have been steadily reducing the rate for years now.

I don't change banks to go from one pathetic yield to another slightly less pathetic yield. If you want higher yields that are still safe, look at getting a CD. Your money is then locked up, but then your bank isn't changing the rate at will. Alternatively, look at getting a low-risk bond fund or from an outfit like Vanguard. Your money is then liquid, and the rates are set by the market rather than your bank changing the rates at will. This is admittedly less safe than something FDIC-insured*, but look, do you really want to spend time shuffling money from one account to another to get a few dollars more in returns? Just the paperwork at tax time is enough to make that a losing idea.

So with all my griping, why do I have money at ING? I do need to have emergency cash, their rates are decent for this sort of account and their service is good. I'm not switching to some other bank I don't know just to get a few dollars more per year.

* though all the bailouts make me wonder if you might as well regard instruments such as money market funds to be government insured.
posted by massysett at 7:08 AM on August 19, 2010

Thanks, everyone, for your helpful replies. This is the OP (from my super secret sockpuppet account).

ING sounds good, and I view them as the granddaddy of online-only banks. The yield they're offering is not super high, though, when compared to some of the other offerings (see here). They seem to be offering up to 1.10% on savings accounts, and up to 1.25% on checking accounts (why higher yield on checking vs. savings? anyone know?). I also don't like the idea of a daily cap on withdrawals, and no ACH transfers.

To Roark, can you give any additional detail on how you keep your funds? Also, do you worry about the additional tax reporting and tax audit risk from keeping foreign accounts? Feel free to email me offline from the thread.

Massysett--I'm totally with you. When I was a kid, I had an account that paid 8%! Now, I'm scrambling to eke out another 70 basis points. It's pathetic.
posted by myaskme at 7:14 AM on August 19, 2010

Jumping through bank hoops is annoying and exhausting. Ally currently offers an FDIC insured 5-year CD @ 2.76% APR with only 60 days early-withdrawal penalty. For simplicity, consider $200,000 @ 2.76% as ~ $450/mo:
» 0day — (-$900) 100% penalty
» 1mo — (-$450) 50% penalty
» 2mo — $0
» 3mo — $450 ~ 0.9%/yr (1/3 of 2.75)
» 6mo — $1,800 ~ 1.8%/yr (4/6 of 2.75)
» 1yr — $4,500 ~ 2.3%/yr
» 2yr — $9,900 ~ 2.5%/yr
» 3yr — $15,300 ~ 2.6%/yr
» 5yr — $29,593.91 @ 2.80% APY
posted by stuph at 7:23 AM on August 19, 2010 [3 favorites]

I dont have a foreign account, just a brokerage account at interactivebrokers (I bet most brokerages have something similar), and then its just like buying a stock or anything, you just get a position in AUD that gives interest on the rate differential between the 2 currencies.

link to the current rates

I dont believe this raises any eyebrows in terms of tax consequences, nor do I think Im on the hook for tax in Aus, but I could be wrong on that.
posted by H. Roark at 7:50 AM on August 19, 2010

I don't chase rates, but I do bank online. ING finally annoyed me enough that I moved everything to Schwab recently (had both going for a long time). Schwab has been consistently higher than ING for the last 3 or 4 years, plus their customer service is a lot better. Fewer fees (always check the fees as hard as you check the rates, if not harder).
posted by QIbHom at 8:18 AM on August 19, 2010

To clarify, ING does ACH transfers, which take a couple days, but not same-day bank wire transfers.
posted by ellenaim at 8:48 AM on August 19, 2010

Chasing rates is generally not worth it in my opinion, but if you want to calculate how much of a difference it will actually make for you, you can check out a compound interest calculator and crunch the actual numbers yourself. This information may help you determine if it's worth your time and the hassle of repeatedly transferring that large amount of money.

Rather than get a couple of extra decimal points by switching banks, I would suggest reading up on CD ladders if you're willing to sacrifice some liquidity in the short run in exchange for a better rate.

There are lots of good banks recommended above, but I'd also nth that you check out the rates offered by credit unions in your area. Their rates will probably be somewhere between brick-and-mortar banks and online banks, but you'll have more convenient access to your funds.
posted by crosbyh at 12:22 PM on August 19, 2010

Stuph, thanks for posting--it hadn't occurred to me that it might be economic to go for the higher yield on a CD and to eat the early withdrawal penalty when I want the cash. I ran my own numbers and I beat my current yield after only two quarters with the Ally CD, and I'd be getting about 3% yields by the first quarter of the second year.

I'll do a little shopping around, but this seems like a really great option. Thanks!
posted by myaskme at 8:04 AM on August 20, 2010

I use INC and EmigrantDirect -- both are online banks have pretty solid interest rates for a simple savings account. It's been really easy to transfer $$ to multiple accounts.

If you have $200K or more for your "rainy day", you may want to take a portion of that and put it into a 6 or 12 month Mutual Fund -- sometimes you'll earn a bit more than the savings account rate.
posted by Kerry-in-Atlanta at 2:19 PM on September 13, 2010

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