Search Results for: High Interest Savings

I haven’t been much of a interest rate-chaser recently, and it feels like it’s been a while since I’ve opened up a new bank account. For one, I already have a lot of my cash tied up in CDs and I-Bonds. Also, most of my recent cashflow has been going into 401k and IRA contributions.

Now that I have a bit more free time, I decided to open up a new “Rewards Checking” account at Evantage Bank. It offers 5.25% APY on the first $10,000 in balances, and 2.25% APY for anything over that if you meet their requirements of electronic statements and 10 debit card purchases per month. I liked it because it was available nationwide, there were no minimum balance requirements, and didn’t have a direct deposit requirement.

In addition, they have a “Mega Money Market” savings account that is currently paying 3.10% APY on balances to $35,000. (No debit requirements.) So you could keep a total of $45,000 parked at Evantage at a combined interest rate of 3.58%. Not too shabby in this current environment. Alternatively, you could open a second Rewards Checking account and get another $10k at 5.25% (but also with another 10-purchase commitment).

So far, the account application was run by CashEdge, with the usual informational requests and ID verification using questions based on your credit report. The process was completely online, with both online signature cards and an ACH transfer option for initial deposit. I’ll provide a better update once I get started.

I’ve written about rewards checking accounts in the past. They are a gamble and you can earn very little interest if you don’t pay attention to the requirements. In addition, the rates can drop quickly. Look at your own habits, and hopefully these rates will stay competitive for a while.

Evantage is one of identical triplet banks, along with Redneck Bank and AmericaNetBank, which are all owned by the Huckabay family of Oklahoma. The three banks reportedly have different gimmicks to attract publicity – supposedly the redneck, patriot, and high-tech crowd? Apparently it worked, because Redneck Bank isn’t even taking new applications as of yesterday.

Some eagle-eyed readers let me know late last night that WaMu/Chase quietly made a change to their offered interest rates. Their online savings account is now at 3% APY when attached to their free checking, down from 4%. Not too bad, but no longer the highest yield for a no-minimum-balance savings account.

They also lowered the rates on their online CDs, with the 8-month, 12-month, and 13-month CDs all at 3% APY. It looks like those that opened up one of their 5% APY CDs late last week just got in under the gun. My 12-month CD was successfully funded yesterday, and today I see my 5% APY rate shown online. All signs seem to suggest that Chase will honor these CD contracts. Hurray for small victories 🙂 , I hope everyone who wanted in on these got their application in on time.

Options?
Given these actions, it might be time to move banks soon… now to investigate other attractive all-in-one Checking/Savings combos. Here are some possibilities:

Everbank has their FreeNet checking account with a 1.10% bonus rate for the first 6 months, and then 0.70%-0.86% APY afterwards depending on balance. No minimum balance, but you need $1,500 for free billpay. $6 in free ATM fee rebates each month.

Combine this with Everbank’s Yield Pledge money market account, which also has a 1.10% bonus rate for the first 6 months, and then 0.86% APY afterwards. This account “pledges” to stay amongst the top 5% of competitive banks, and there is a minimum balance requirement of $1,500 to avoid fees.

Fidelity has their mySmart Cash account. It is kind of a checking account/brokerage account hybrid where you can basically use their money market funds (non-FDIC-insured) as the main holding place on your cash for higher yields. You can choose from taxable to tax-exempt money market funds with competitive yields. Their main checking account is FDIC-insured, and is currently earning 1.50% APY. No minimum balance, and you get unlimited ATM fee reimbursements.

While logging on to my WaMu account I noticed (as did reader Alvin) that the WaMu savings account* is now paying 3.75% APY as of 7/31. Some pages still say 3.30%, but my account details confirm the 3.75% APY. (Login and click on “About this account”.) Or, click here and hit Apply Today, and you should see this:

Of course, if you read the news, you’ll know that Washington Mutual stock is being battered right now. Is this move a sign of desperation? If so, is this rate increase good news or bad news?

It’s All About The FDIC Limits
Well, if you have money over the FDIC insurance limits of $100,000 per titled account, I strongly suggest you stop reading right now and spread it out immediately. Your money is at risk. Here are some good options.

If you are under the limits, then your money is safe. The main things left to worry about are (1) easy access to money, (2) crediting of current interest earned, and (3) future interest rates. But hey, we already have two examples of struggling banks that give us an idea of what we might be in store for.

IndyMac Bank CD Example (FDIC takeover)
I believe that IndyMac failed on a Friday, and branches were closed that day. Over the weekend, branches were closed and the website was down. ATMs and debit cards still worked. By Monday, all the branches were open and the website was back up. Direct deposits, electronic transfers, and written checks went through uninterrupted.

All interest earned in accounts (under the limits) was still credited. Before the failure, IndyMac Bank also had some high interest rates on certificates of deposit (CDs). Upon takeover by the FDIC, an ideal scenario actually happened. For one, you had the option to withdraw your money from a CD with no early withdrawal penalty. Or, if you liked the rate, your CDs could continue to earn the same interest until maturity. This is an even better deal than if IndyMac stayed intact.

Countrywide Example (Bought by Bank of America)
Another struggling bank, this time merged with another existing bank. Currently they are still separate websites, with their own interest rates and products. Nothing really changed from the customer’s point of view. There was no downtime, or lost liquidity. You use the same checks, same debit cards, same website. CD rates and other terms remained the same. A slight bonus was that Countrywide customers could now withdraw money from Bank of America ATMs with no fees. [Merger Info]

So, Will WaMu Fail?
I have no clue. My PTI-style Toss-Up Percentage: 25% Fail, 75% No Fail. But even if it does, given it’s size, I can’t see it disappearing overnight like a small local bank might. It would have to be taken over by another (probably large) bank. In addition, there are so many moving parts that it will probably keeping run as-is for several months even if it does get taken over.

Taking all this into account, I will be sticking with Washington Mutual and happily take the increased interest rate.

* Reminder: This 3.75% rate is only available if you apply online and open a Free Checking account at the same time. If you go into a physical branch, they will deny deny deny! However, after opening you can use it at a branch just like any other savings account. More details.

Well, it finally happened. IndyMac Bank has been taken over by the FDIC, becoming the second-largest financial institution failure in U.S. history. I’ve been reading a bunch of new stories about it, and here are what I think are the highlights:

Customers: Don’t Panic!
Most people with regular checking or savings accounts don’t have too much to worry about. The FDIC has set up this official information page for customers. You can still use ATMs. Checks you write will still be processed. Electronic deposits and withdrawals will still go through. Online banking, phone banking and even the physical branches will re-open on Monday. You won’t even lose past interest:

All interest accrued through Friday, will be paid at your same rate. IndyMac Federal Bank will be reviewing rates and will provide further information soon. You will be notified of any changes.

From the LA Business Journal:

The Office of Thrift Supervision transferred control of the company to the Federal Deposit Insurance Corp. The FDIC said it will transfer insured deposits and assets of IndyMac Bank to a new federally operated institution called IndyMac Federal Bank that will open Monday. […] Regulators said that customers of IndyMac will have uninterrupted access to their accounts beginning next week at the bank’s 33 branches.

This is consistent with when I explored What happens if my bank fails? The FDIC seems to do a pretty good job of cleaning things up.

…Unless you exceeded the FDIC insurance limits

Customers are insured 100 percent for deposits up to $100,000. The FDIC said the bank has about $1 billion of “potentially uninsured deposits” held by 10,000 depositors. The FDIC said it will begin contacting uninsured customers on July 14. The agency said it plans to give customers with more than $100,000 at least 50 percent of their uninsured deposit amounts.

Wade Francis, president of Long Beach-based Unicon Financial Services, said there is “very little” chance that uninsured depositors will get all their money back because IndyMac had a large number of home loans, which will be difficult to sell off.

It boggles the mind that so many of the very same people who have enough money to exceed FDIC limits in the first place, don’t bother protecting it properly. The whole point of keeping money in banks is so that it is safe… Instead, people are getting 50% and go home and pray to see the rest again. Ouch.

Ouch For the FDIC, Too
From the LA Times:

Federal authorities estimated that the takeover of IndyMac, which had $32 billion in assets, would cost the FDIC $4 billion to $8 billion. […] The agency’s insurance fund has assets of about $52 billion.

That’s a big chunk of the FDIC’s own “emergency fund”…

Reality vs. Perception of Reality
There is a great quote from the 1992 movie Sneakers:

Cosmo: Posit: People think a bank might be financially shaky.
Martin Bishop: Consequence: People start to withdraw their money.
Cosmo: Result: Pretty soon it is financially shaky.
Martin Bishop: Conclusion: You can make banks fail.
Cosmo: Bzzt. I’ve already done that. Maybe you’ve heard about a few? Think bigger.
Martin Bishop: Stock market?
Cosmo: Yes.
Martin Bishop: Currency market?
Cosmo: Yes.
Martin Bishop: Commodities market?
Cosmo: Yes.
Martin Bishop: Small countries?

This is basically what happened to IndyMac bank. From CNN:

The banking regulator said it closed IndyMac after customers began a run on the lender following the [very public!] June 26 release of a letter by Sen. Charles Schumer, D-N.Y., urging several bank regulatory agencies that they take steps to prevent IndyMac’s collapse. In the 11 days that followed the letter’s release, depositors took out more than $1.3 billion, regulators said.

UPDATE: Rates have dropped, but these checking account still maintain around 2% APY edge over traditional online savings banks and 3% APY over big megabanks.

You may have seen some billboards or heard a radio ad around town for a local credit union offering a curiously high interest rate. 4% APY? Even 5%? They usually go by names like TurboChecking, Great Rate Checking, SuperRewards Checking, or similar. What’s up?

Background
It would seem that small local banks and credit unions are being squeezed on one side by megabanks offering “free” checking and a million ATMs, and on the other side by lean online savings accounts paying higher interest. It’s hard to compete. But then a company called BancVue came up with a different solution for all those small banks and credit unions who want to differentiate themselves.

The basic idea: Offer customers a really high yield and ATM fee rebates, but only if they jump through certain hoops. Hopefully, this carrot will attract lots of new customers. If they don’t, then they just get a plain “free” checking account with piddly interest. In the meantime, you try to make more money with credit card transaction fees and cross-selling other products. BancVue actually guarantees that “Reward Checking relationships will be twice as profitable as your Free Checking relationships”.

The “Catches” and Requirements
So what are the hoops? Usually you have to satisfy all of these restrictions to earn the advertised rate and get ATM fee rebates:

• Make 8 to 15 “signed” debit card transactions each month (use it like a credit card).
• Make one qualifying direct deposit, auto-debit, or online bill payment each month.
• Receive electronic statements only (no paper).
• Log into your account at least once a month.
• The rate only applies to the first $25,000 (varies). Balances over that earn significantly less.

As you can see, most of these activities strongly encourage you to shift all your banking activities to this new bank. You have to put money in, spend the money, and even check your balance online every month.

The Potential Profit
The interest rate offered varies from bank to bank, but is usually between 4% and 6% APY. I would say the average no-fee, no-minimum high-yield savings account earns about 3% right now, maybe more. Since these are exactly that – no fees, no minimums, no hassles – I’ll use that as one comparison. If you somehow leave exactly $25,000 in your account at all times:

$25,000 x 6% APY = $1,500 per year

$25,000 x 3% APY = $750 per year

So the 3% interest gap results in a maximum gain is $750 of taxable interest per year, or $62.50 per month. Not bad for those with lots of cash available. But lets say your average balance is $5,000. Then your maximum gain is only $150, or $12.50 per month. The monthly number is probably more appropriate because it is anyone’s guess how long the gap can stay this large. To estimate more accurately the potential gain for your situation, you can use my Ultimate Rate Chaser Calculator.

Concerns and Strategies
Here’s the key thought. If everyone satisfied all of the requirements and earned a FDIC-insured 6% yield, the bank would be losing money like crazy. They are either depending on many people to either forget or screw up somehow. And even if you do, there is the potential that you’ll have to argue with some customer service rep about it. This is in comparison to the relatively stupid-proof no-minimum no-fees savings accounts. For every month you don’t fulfill every requirement, you’ll essentially be losing interest. You might even lose money because ATM fees will not be rebated in that case either.

So first of all, you need a reliable system to satisfy all of the requirements every month, preferably early on in each cycle. Some banks treat electronic transfers from other banks as direct deposit, so scheduling a monthly repeating transfer would work there. For the monthly login requirement, perhaps a monthly Google Calendar or IWantSandy e-mail reminder would be a good idea.

Next, you’d want to make your balance large enough to take advantage of the higher interest rate, but not too high as to you exceed the limit and bring your overall effective interest rate down.

The biggest pain is the ~10 debit card purchases per month (ATM visits don’t count). You don’t want to switch all of your purchases because you’ll be losing out on the potential 1-5% cash back from a cashback or rewards credit card. One strategy is to pay bills like your cell phone or cable bill online, but only in partial amounts like $5. Others make repeated small purchases (i.e. a few stamps) at the Post Office. Here’s my silly but practical solution – each month I take a post-it and cut out only part with a sticky backing. I draw 10 boxes, stick it on the card, and I check off a box each time I use the card for a small purchase.

Finally, these rates can drop at any time, and they often do. Which means if you are really a rate chaser, then you might be finding yourself constantly switching banks, waiting for ATM cards to arrive, and trying to satisfy multiple accounts while moving money around. Since these are small banks, most of them have no online interbank funds transfer system. Result: Lots of hassle.

So, Is It Worth It?
As always, I leave this ultimately up to each person. If you are a real rate chaser, have at least $20,000 in cash, and are very discipline and organized, then this is one way to get some extra yield from your money. If you have low balances or tend to get busy at times, then your chances of actually coming out behind a no-brainer savings account are very real.

For me, the hassle hasn’t been worth it until now, mainly because many of these rates seem to drop right after I consider applying. However, the current the gap between the interest rates offered by online savings accounts is still around 2%, my Vanguard municipal money market yields are pathetic again, and also a local credit union I was going to join anyways is now offering one of these accounts, so I decided to try it out with a bit of cash. So far, it’s okay but I really don’t like having to pray each month that I get the proper interest credited.

Local Banks May Be Best
All things considered, I would recommend first looking for a local bank that offers this program at a good rate. This goes back to the fact that banks are counting on lazy/apathetic people to counter the hardcore rate chasers. If they start losing money, they will lower the advertised rate. A credit union with restricted membership may offer a less diligent customer mix. In addition, I continue to find better customer service if you can simply walk in and talk to a real human. You can find a list of participating banks by state here.