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Where to park short term funds?

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This article is out of date, the rates have since increased.

One question I’ve always grappled with is where to put my emergency/short-term funds. I have come to two conclusions: ING Direct or Emigrant Direct. Both are fighting each other with competitive rates, so what’s the difference?

ING Direct – Well known for their 2.60% savings account that you fund via ACH transfer and withdraw with the same. Not only do you get the 2.60% but you can get a $25 bonus if someone sends you a referral. You can visit this self-serve $25 ING Direct promotion page for referral links. There are no fees and no minimum balance, your cash is FDIC insured. $25 bonus will be treated as 1099-INT income for tax purposes (just like regular bank interest).

Emigrant Direct – They are relatively new in the internet banking game but they’re offering 3.0% which is a little higher than the 2.60% of ING Direct. They’re reputable because their brick and mortar business has been around for a while but there aren’t any bonuses. There are no fees and no minimum balance, your cash is FDIC insured.

Which one should you choose? Well, I personally use ING Direct because they offered the $25 bonus and I didn’t feel a need to open up a second account for the extra 0.40%. Would I be averse to Emigrant Direct? Of course not, they appear solid but I do not have any personal experience with them. In both cases, you can transfer funds in and out in a matter of days and there have been reports of people who pay directly from their ING Direct using ACH transfers to credit cards (using routing and account numbers). While ING Direct doesn’t explicitly support that option, some have used it successfully.

My vote personally is for free money and 2.60% savings interest for a short term place to park some emergency funds.

Update (on 5/21/07): The current prevailing rates are 5.05% from Emigrant Direct and 4.500% from ING Direct.

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7 Responses to “Where to park short term funds?”

  1. Michael says:

    I, too, choose ING over two years ago. I got a $50 bonus for opening my account thru Turbotax software, and have since referred a few friends and relatives. I recently noticed they upped their dividend to a not-too-shabby 2.65% (try getting that at a major bank without tying up your money for at least 6 months).

    I am considering opening an additional small account with Emigrant to test the waters. No law against having your short term funds in more than one place, now is there? I think they would get more people to try their services with a bonus. Perhaps someone from Emigrant will read this posting.

  2. jim says:

    Yeah I saw the recent bump in interest rate, it’s not worth it for me to sign up for Emigrant Direct just for a few more percent. They should probably offer some sort of bonus and they’ll get a lot of traffic.

    ING is paying attention though because this jump of .25% has been the biggest jump in my recent memory. It happens to correspond to the Fed’s recent 25 basis point bump of interest rates.

  3. Caitlin says:

    Great site Jim! So ING is still at 2.6% and Emigrant is now at 3.25% but I also noticed on bankrate that they compound differently. I believe it was ING was monthly and Emigrant was daily. I have been wondering how this affects the bottom line, any ideas?

  4. jim says:

    Interesting, I never really looked into it but their rates are listed as APY (Annual Percentage Yield) so the way they compound won’t matter. An APY is the yield you’re getting regardless of the actual interest rate. An interest rate that is lower but compounded more frequently may have a higher APY than an interest rate that is higher but compounded less frequently. By listing an APY and not just the rate at which it compounds, you can make a fair comparison. I hope I explained it sorta okay. :)

    Thanks for your comments, I’ll be sure to check out your site too!

  5. Caitlin says:

    Thanks Jim…that does at least clarify that it’s apples to apples — which is good. I am left wondering the ultimate question though “is it worth it?” Emigrant will clearly make me *more* money by EOY (I have a specific 10k target in mind) but I am really wondering how much of a difference (post-tax) given when and how much I deposit. It’s just a curiousity thing ;) but I have not located a good online calculator to help me. Ah well. Thanks for clearing up the “rate” vs APY!

  6. Zach says:

    I love my ING Direct account. It doesn’t have the highest APY but you won’t get better customer service anywhere else. Also, their online interface is just easy and awesome.
    I also do still have many referral links left if anyone would like to contact me to receive a link (either for an orange savings account or the electric orange checking/savings account) to sign up for an account. You receive $25 for signing up with a min. of $250 or more. A nice little bonus for nothing! Just shoot me an e-mail @ z3trkrnr@gmail.com and I’ll send the link right back to you!

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