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Where to park short term funds?

This article is out of date, the rates have since increased.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 [3] or Emigrant Direct [4]. Both are fighting each other with competitive rates, so what’s the difference?

ING Direct [3] – 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 [5] 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 [4] – 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.