When HSBC Direct raised their savings account interest rate to 3.50%, I opened an account. I didn’t open it because I was planning on moving funds from a 3.00% ING Direct account, I did it because the cost of opening an online savings account was near zero and because I could then start funneling income deposited into a 0% Bank of America checking account into the new HSBC Direct account. It doesn’t make much sense to move funds from ING or Emigrant to HSBC, but it does make sense to change the destination of funds from Bank of America.

There were a few other non-financial reasons for opening the account. First, there’s no marginal cost to opening another savings account. HSBC has a well known international name and has consistently been among the leaders in interest rates. I would be hesitant to open an account at a lesser known bank. HSBC’s international presence is also a benefit. When we were in China and Taiwan, HSBC was everywhere (along with Citigroup) and that’s a side benefit. Lastly, my mom has an HSBC account, in part because of the China and Taiwan presence, and having that link is convenient as well.

Opening An HSBC Account

The HSBC account opening process is quick and painless (~10 minutes), though it requires more information than most banks because they try to set up everything in one pass. You start by giving the typical personal information all banks ask including social security number. They do a quick inquiry and ask you for three items from your credit history. Then, you get the option of linking a bank account right there.

They verify your bank account by requesting your login credentials and then login. My bank account was linked within seconds (and the transfer was initiated). No more waiting 3-5 business days for two small deposits, the verification process is done right there. Very nice touch.

After about two days, HSBC starts sending you emails (there are quite a few) about your registration, how to log on and set up your account for the first time. Specifically, they’ll email you a link to the Internet Banking Activation page and a registration code, but don’t bother going trying to activate until you get your temporary password by postal mail. Yeah, they mail your temporary password by pony express.

In all fairness, the letter got here pretty quickly. I opened my account on June 4th, received my temporary registration number by email on June 6th, and received the temporary password on June 7th (the letter was dated June 5th). However, because of the mail, any time that was shaved off in the bank linking portion is now definitely lost waiting for a password via mail (probably why they do that). It’s all done in the name of security but it strikes me as a bit unnecessary and overkill.

From here, you go to the activation page, enter in those codes, set up your account access credentials (which includes a username, password, and security key that must be entered by on-screen keyboard), enter two security questions, and you’re in! (whew!)

Bank to Bank Transfers

One of the features of online savings accounts that was once allowed but now stopped by many online banks was the ability to link online savings accounts. I used to have my Emigrant Direct and my ING Direct linked together so a transfer took only a handful of days, but about a year ago they severed the tie and began requiring paper checks to link accounts together.

Well, I was curious as to whether HSBC would let me link up with ING Direct and they did! I submitted a request through the Bank to Bank Transfer online form, HSBC made two trial deposits to my ING Derect account, I verified the transaction and the link was created. It’s important to remember that Federal Reserve Regulation D limits the number of transactions on a savings account to six a month, so I just expended two in the verification process.

Quicken & Money Data Support

Quicken and MS Money data addicts users will be happy to know that HSBC Direct offers support for both applications (for Quicken, you get Windows and Mac version support).

Thoughts

At the moment, I’ve been playing a little with my account and it seems pretty standard compared to other online savings accounts I’ve had. The one noticeable difference is that it’s not as sleek as the ING Direct interface and there doesn’t seem to be any way for me to easily create additional accounts. Of course, only ING Direct offers that option at the moment so it’s not like HSBC is really inferior to peers.

Overall I’m pleased with HSBC Direct so far.

Here’s another, incredibly comprehensive, HSBC Direct review written by your good friend and mine, Cap.

HSBC Direct just raised their interest rate to 3.50% APY, leading many of their competitors. By comparison, ING Direct sits at at 3.00% and E*Trade remains at 3.15% (they are three of the five online banks I considered the best online savings accounts).

Is it worth it for you to move your funds from a 3.00% APY interest rate bank account to a 3.50% APY interest rate bank account? No, because the time your funds are in limbo, not earning interest, will make the effort not worth it (unless you have a ton of money). However, the cost to open a new bank account is practically nil and HSBC used to be one the leaders prior to the recent string of Fed interest rate cuts.

Also, this rate is guaranteed through September 15th, which means they can increase or decrease it over the next three+ months. So, use HSBC Direct if you don’t have an account but don’t bother opening one to transfer funds in for this rate.

(Photo by superciliousness)

If you’ve ever seen Catch Me If You Can, starring Leonardo DiCaprio, then you’re very well aware of the exploits of Mr. Frank Abagnale Jr. The story is about one of the most prolific check fraudsters. He’s passed a bad check in all fifty states as well as an additional twenty-six countries, before behind apprehended. Recently, US News had a chance to talk with him and he passed on five tips to prevent check fraud.

The tips are fairly straightforward - release as little information as possible, don’t use checks because they’re insecure, and check your register every single month. Diligence and common sense have always been and always will be the best defense against fraud.

If you think interest rates are falling, put some of your savings into a CD. Since last August (2007), the Federal Reserve, haunted by the spectre of a slowing economy, had been hacking and slashing the Federal Funds and Discount rates. During that run, and until just recently, the prevailing attitude on Wall Street was that the Fed was going to continue cutting the rate until the threat of future inflation balanced out the threat of a recession. With this last twenty five basis point cut at the end of April, the prevailing attitude changed. Analysts now believe the Fed will stand pat and potentially even raise rates in the future.

During those rate cuts, all of the high interest online banks dropped their savings account interest rates dramatically. Since January of this year, the interest rate on E*Trade’s online savings account fell from 4.95% to 3.01% (only to increase, just recently, to 3.15%). ING Direct account holders saw their rates fall from 4.10% to their current rate of 3.00%. If you were able to purchase a CD at the prevailing higher yield online savings account rates for even a year, you’d be sitting pretty on those funds right now and that’s why CDs become popular during a falling interest rate environment.

This is where you say: “Jim, I’m not an idiot, I know that if the rates are going lower then I want to lock in good rates.” Yes, you are not an idiot but the point is I didn’t lock in any funds in CDs, except for my laddered emergency fund, because I didn’t recognize that I should have (or at least should have considered it). It wasn’t an error of judgment but one of ignorance.

Everyone knew rates were going to be cut but not everyone realized they should’ve considered putting a little bit away in certificates of deposit. (I can confidently say that because I know I didn’t) So, the next time you think rates are going to stagnate or fall, lock a little away in CDs.

This is comprehensive review of the best online banks, specifically those with a high interest savings account available (high interest refers to the interest rate and all these banks have above a 3.0% APY interest rate). FNBO Direct, HSBC Direct, ING Direct, E*Trade, WaMu, and Emigrant Direct are looked at.

There are dozens and dozens of online banks offering all manner of savings and checking accounts. Some banks you’ve heard of before and some you’ve never heard of. Makes you wonder what the best online bank is huh? Before you ever deal with any bank of any kind, online or in person, be sure to double check that they have FDIC insurance (lookup) and that they’re a legitimate bank. That being said, all of the banks on this list are legitimate, have FDIC insurance, and have been in the business of banking for a few years. These aren’t no-names but their names may not be familiar to you (if you read a lot of personal finance, all of these names will be recognizable) and they’re all banks that I’ve dealt with personally or talked extensively with someone who has dealt with them personally.

Best Bank: FNBO Direct - 3.50% APY!

At the behest of a reader, I opened an account at FNBO Direct and wrote up a review of FNBO Direct. With a compelling 3.50% APY savings account offer, FNBO Direct stands better than HSBC because they have no end date for the promotional offer. Much like the other banks, there’s no minimum deposit to get this rate. If FNBO doesn’t sound familiar, it stands for the First National Bank of Omaha (FDIC Cert #5452) and was established in 1857 and has been FDIC insured since January 1, 1934 (when FDIC started). This bank has been in business much longer than many of the banks on this list.

#1b. E*Trade

E*Trade, known more as a discount broker than as a bank, takes the number one-A spot in my list of top online savings banks because you can link your savings account to a brokerage account and instantly transfer funds between the two. If you’re an impulsive gambler and like to plow money into penny stocks, you don’t want an E*Trade online savings account or its 3.30% APY interest rate because you’ll probably turn it into a -100% interest rate account. That being said, the appeal of this account for me is the speed and convenience of being able to transfer between the two without having to wait several days for an ACH transfer. If you have more than $5k and fancy a checking account, they have a checking account too.

#2. ING Direct

For the longest time, ING Direct did not have the best of rates. While other banks were up in the 5’s, they were in the 4’s. When others were in the 4’s, they were in the 3’s. Now that the others are in the 3’s, it’s glad to see ING Direct is still in the 3’s. I’m a fan of ING Direct because of how easy they make everything. Their interface is intuitive, fast, and I can easily refer other people to take advantage of their $25 new account bonus. I can commit funds to a CD in minutes and then manage it all in one place. To be completely frank, interest rate is an important factor but not the most important factor when the rates differ by fifty basis points (half a percent on $1,000 is a mere $5, plus it’s taxed!), it’s about reliability and consistency and they’ve delivered on both.

ING Direct also has a promotion where you can get $25 if you open a new account and deposit $250, the only caveat is that an existing member has to refer you. You can visit this ING Direct $25 new account promotion referral page for a list of referral links. The referrer gets $10 for referring you.

#3. HSBC Direct

How could I put HSBC Direct, the online bank rated 2006 Best Overall Online Bank by Kiplinger’s Personal Finance, at third? Sometimes that first mover advantage is difficult to overcome. Many banks appeared before HSBC but none had HSBC’s brand name power and once you have a high yield savings account, is there a real need to get another one? I actually do not have an HSBC account but many of I recently opened an HSBC Direct account and agree with my friends who have said it’s definitely one of the best in terms of features (and rates, they’ve been consistently one of the highest interest rates since their inception). The minimum amount you need to deposit to get the best rate is $1, which is the same as some other banks but E*Trade (checking) requires at least $5,000; so a minimum of $1 is not true across the board.

#4. Washington Mutual (WaMu)

If you are not comfortable with a completely online experience and there are no HSBCs near you, you might want to consider Washington Mutual and their Free Checking account as an option. You can link up your regular Wamu accounts, get free checks for life, cash-back on your debit card purchases, no monthly account fees, and the awesomely powerful 3.75% APY interest rate on a checking account. For me, I already have a checking account and the desire to have such a flexible and lucrative checking account isn’t enough for me to open up another one (plus there isn’t a branch near me, on the biggest advantages of a B&M type place).

#5. Emigrant Direct

Emigrant Direct probably has the least amount of branding power compared to the rest but they were the second online bank account I opened because they had competitive rates. Their CD buying process is also quite simple, not as simple as ING Direct, but their online account system looks and acts a little dated. One knock against them, which was the big bonus for ING Direct, was their reliability. When they revamped their system, it went down for a few days. That’s not what you want in a bank where the only access is online access.

There you have it, my five top online banks (though one was brokerage first and several of them have brick & mortar presences) according to my experience with them or my research of them. Please feel free to share your opinion and vote for which of these banks (or ones I left off the list) you think makes for the best online bank. (If you’re interested, here is more discussion about the best interest rate banks.)

Links updated August 29th, 2008.
Welcome to the self-service $25 ING Direct signup promotion center at Blueprint for Financial Prosperity. I’ve written on numerous occasions about how ING Direct will give you a $25 bonus for opening either a checking or savings account through a referral and depositing $250, so I’ve set up this page to allow readers to help themselves to the referrals (I get $10 for each referral). In the past I asked for you to contact me, then I emailed out the referrals… no more, this is far easier!

Below, you will see a series of links to ING Direct and each one is an account referral link good for one $25 bonus per new customer only. Each link will only work for one new account so if you click the link and it says “We’re sorry, but the referral link within the email you received has expired and is no longer valid. We recommend that you contact the sender and ask them to re-send the referral email. Or click ‘Continue’ to proceed with the application process without the account opening bonus.” then please move onto the next one. As links are used, I’ll clean up the page such that only the good links are left.

If you use an expired link, you will not get the bonus.

Lastly, if you do not deposit $250, you won’t get the bonus. If you still want an account, please use this link.

ING Direct Savings Accounts

1. ING Direct $25 Savings New Account Opening Bonus
2. ING Direct $25 Savings New Account Opening Bonus
3. ING Direct $25 Savings New Account Opening Bonus
4. ING Direct $25 Savings New Account Opening Bonus
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20. ING Direct $25 Savings New Account Opening Bonus

My friends thank you for using one of their links!

I always read about how Bank of America sucks this, and Bank of America sucks that, but never had experience the suck that is Bank of America first hand. I opened an account with them a year ago with my then-fiancée because they had a branch within walking distance of my house and because they have ATMs essentially everywhere. I looked past the Bank of America horror stories because, honestly, every company has its bad moments. Well, today I met a bad enough moment to make me can Bank of America and go with M&T Bank. (I opened up a personal and business account with them because a good friend of mine works in their new business development side)

No, they didn’t screw me out of $23049823049 in fees or otherwise hosed me by being unreasonable - they did something far worse because it wasn’t some technical glitch or some procedural hangup. They’re going to lose me as a customer because they were rude. When there are as many choices as there are in the world, you can’t even mess up like that. Sorry!

Today, I went to a Bank of America branch to make some check deposits. When I walked up to the counter with my checks, the first thing the teller asks me is if I had counted the amount. I responded “No” because I wanted them to double check my math, as they always do. The responded with a bit of a roll of her eye and then asked me if I filled out a deposit slip. Again I said no, deposit slips are useless anyway. When she counts them up, she’ll print out a slip that goes with the checks and the deposit slip is just a wasted branch on a tree we’d otherwise like to keep around. This is what has happened the other half dozen times I’ve gone in to deposit a bunch of checks (and didn’t want to you the mechanized paper-cut maker of an ATM they have), the teller simply adds them up for you and you’re on your way.

So she pulled out a deposit slip and told me to fill out my name and address on the slip (useless!). Then she put a calculator in my face and told me to add up the checks. All of this was pretty terse and borderline rude but I was content to let it go. As I added up the checks and showed her the calculator, she proceeds to read out the numbers really loudly over and over again. Is there no sense of privacy? I can understand her reading them back softly, but she was speaking more than normal indoor voice.

Okay fine, whatever, at this point the interaction hadn’t gone great but it was hardly worth closing an account over. Then she looks at my balance and tried to sell me on a certificate of deposit. I politely declined. She persisted by saying I was losing money by putting my money in a regular checking account. She’s right, but I still politely declined. Then she proceeded to start talking to the customer waiting behind me! No good bye, no thank you have a nice day, nothing.

That, Bank of America, was the proverbial straw. Keep that lousy $6 you got for giving me an interest rate of 1.0%, which is essentially paying an annual fee anyway, and keep your other worthless products. We’re outta here.

It’s amazing they didn’t make it out of the first round of the Consumerist 2007 Worst Company in America contest (Verizon was a formidable opponent), but you guys should lock up the first round in 2008 against a cupcake like Toys R Us.

Update: Some people have said that I’m being a baby, that I over-reacted, (one guy said he’d punch me) and I respect all of your opinions (maybe I am a baby, but there are plenty of banking options that are more polite) and thank you for sharing them. I actually wanted to touch on the topic of over-reaction. What’s “worse” of a reaction, closing my account or calling out that teller to their manager? If anything, asking to speak to the bank manager and telling them the teller was rude seems to be like a greater over-reaction than closing an account. Thoughts on that?

The other day, as I was preparing my taxes, I saw a curious little $3 maintenance fee on my Bank of America Savings account. For the last five months, I’d been paying $3 a month in a maintenance fee that didn’t appear until November of last year (the account had been opened over a year ago). When I called, I was informed that the fee was because I had less than $300 in the account despite much more than that in the linked checking account. I had moved the funds over to the checking account because the difference in interest, much less than 1%, wasn’t worth me logging in to move funds as needed (vs. the risk of forgetting and taking a NSF fee). In my mind, I had figured that the account was one of those “minimum balance of $something, or combined account value above $something-else” and that I was safely in the $something-else category (usually it’s like $2,500 or $5,000 for something-else so I figured I was okay). Wrong, and they dinged me for $15 (of which I was able to recover $9 with a polite phone call, the other $6 were more than 90 days back and they couldn’t do it, which seems plausible).

The lesson for me here is two-fold and both are related to simplifying your finances. The first, is that as my life becomes more and more complicated, my ability to keep things “on the table” in my mind will diminish. When I was in college, concerned only with a handful of classes and almost nothing else, managing a dozen accounts was no big deal. Now, there are significantly more demands on my mindshare and thus my ability to keep track of everything lessens. One of the things that fell off the table was a monthly review of bank and credit card statements. By simplifying my finances, I can save money because I can more closely monitor my financial accounts. I can catch the $3 fee in the first month, not the fifth, and nip it in the bud.

The second lesson for me was that sometimes what appears to be a smart money move is really more hassle than its worth. More hassle means I’m less likely to do it, which can the smart money move into a stupid money move. The savings account, with its pathetic < 1.0% APY interest rate, exists only because I thought that we could maximize interest earnings. An external transfer would take several days but an internal one takes mere seconds. The savings account could be a holding tank and I would simply move funds as needed. A year later, the hassle of "mere seconds" became too great and I scrapped that strategy, thus costing me a cool $6 and 15 minutes of phone time. Simple is almost always better because I am inherently lazy.

In the future, I’ll be continuing to simplify our finances and operating under the belief that simple is almost always better (because I’m lazy), a valuable $6 lesson.

This promotion has ended.

I know that you all are fans of some free money so this little offer is right up your alley. RevolutionMoneyExchange is a PayPal-like clone, offering online money transfer services but with no fees. They have been around for about a year, running a payment network called Revolution Money that included a debit-like card, but only recently jumped into the person-to-person money transfer business.

The current promotion they’re running is a bonus of $25 if you open an account by May 15th, then you can start referring people (as I am doing so now) and you earn $10 for each person you refer. The only rub I have with RevolutionMoneyExchange is that they require a social security number and they may even deny you an account based on that (though it doesn’t appear they run any credit checks, so I’m not sure what they’re checking and why the need to social), but if you’re cool with that (I was) then the $25 is almost as good as yours.

Signup takes about five minutes. Don’t say I never gave you anything.

Pay day loan shops (and cash checking and other similar short term loan shops) are often singled out as places that prey on consumers in a tight spot. While I don’t dispute that, I want to point out other places that also prey on consumers in a tight spot that don’t often get the spotlight.

Pay Day Loans Are Bad

Don’t get me wrong, pay day loans are horrible products for consumers because of their high fees, high interest rates, and their propensity to become financial sinkholes. It’s the financial version of someone going in for a routine cavity filling and coming out with a lobotomy. You just need a little extra help to get you to the next pay day but end up paying for years. According to this warning by the FTC, they give an example in which “the cost of the initial loan is a $15 finance charge and 391 percent APR. If you roll-over the loan three times [42 calendar days], the finance charge would climb to $60 to borrow $100.” $15 to start and 391% APR is horrible but let’s compare to some of these other products.

Refund Anticipation Loans

Refund anticipation loans, tax rebate loans, assisted refund loans, etc. are horrible horrible, don’t ever get a refund anticipation loan. These products are often highlighted as preying on consumers but I felt they should be mentioned anyway. Given the fervor over pay day loans, you’d think a loan with a $30 activation fee, $20 check processing fee, and a 36% APR would get a little more heat than it does. $50 to start plus 36% APR on funds that are guaranteed (if the tax preparer does their job right) by the IRS… seems a little rougher than the pay day loans, which are loans on funds that are not guaranteed.

Bank Fees

According to Bankrate’s 2007 bank study, bank fees are on the rise. Big time. A bounced check will cost you $28.23, average ATM surcharge will run you $1.78, and the average monthly service fee on a checking account was $11.72 (don’t ever pay a fee for a checking account). You’d think that they were lending you money given those fee values! I can understand the headache of a bounced check but let’s get real here, bounced checks never come alone. In fact, considering banks withdraw the largest amounts first, you’re more likely to see multiple bounces than a single bounce.

Credit Card Fees

Again, credit card companies have come under heat too but it still bears highlighting that they’re practices are closer to pay day loans than they are to the Fed. If you make your payment late, most places will charge you somewhere between $20 and $30, with the bias towards $30. Interest rates? High, plus companies have been mailing out letters notifying people that their rates have gone up for no reason. I’ll leave it at that since the credit card industry does take a lot of heat for their practices.

So as you can see, pay day loans are horrible but there are a lot of other horrible and more mainstream products out there that simply don’t get the same exposure. Bouncing a check is like missing a payment which is like taking out a pay day loan, in terms of cost, but at least with a pay day loan you get something out of it (a horrible horrible loan!).