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Spread Your Savings Across Multiple Online Banks

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Update: My funds are now safely split amongst FNBO Direct, ING Direct, and an HSBC Direct account. (ING Direct is merely my online account firewall with PayPal, so it doesn’t have the same amounts as the other banks)

Right now I have all my savings, including my 0% balance transfer funds, in an Emigrant Direct account. With the latest hubbub about Bankrate lowering their rating to two stars (read the discussion here, hat tip to Tessa to clueing me into it initially), I started to rethink my online savings “strategy.” Tessa mentioned that Emigrant Direct could potentially hold my funds hostage for 30 days and so I thought… I shouldn’t have all my eggs in one basket. (Honestly, if I’m in a bind and need the money, any delay is too long) Right now, 75% of my cash is in that Emigrant Direct account (but half of that is 0% balance transfer money)… which is way too much anyway.

All my eggs are in, basically, one basket and it’s something I’m going to remedy. I just opened up a Virtual Bank account, who has competitive rates as well, and I hope to be able to link the two accounts together so I can siphon off half the contents of the Emigrant account. That way, if something fishy happens to Emigrant or with Emigrant (money there is FDIC insured anyway), I have access to the other half in Virtual Bank. (I opened up a Virtual Bank account and not an HSBC account because there is a $20 referral bonus, email if you’d like one)

Something you should be considering if you aren’t already.

{ 13 comments, please add your thoughts now! }

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13 Responses to “Spread Your Savings Across Multiple Online Banks”

  1. Jason says:

    Unless they have changed it, I believe both EmigrantDirect and Virtualbank both require a check to set up new account links. So unless you were able to link it when opening you will probably have to push the money through a third bank first.

  2. jim says:

    VirtualBank has changed that policy I believe because when I opened it only asked for my bank’s ACH routing number and my account number.

  3. Depending on which country you bank in, there may be an advantage in keeping all or most of your money with a single bank – larger deposits often get better interest rates than smaller deposits.

    Of course, the downside is, as you point out, increased risk in the event that there is a problem with your bank.

  4. samerwriter says:

    Spreading your money across several accounts has some downsides, of course. More paperwork which makes it moderately more complex to track your money, and makes taxes even less fun than they already are.

    I’ve been happy with the strategy of picking one savings account that always has a competitive rate and great customer service with a really easy way to transfer money into the best US index stock and bond funds as your savings grows.

    That is, of course, Vanguard. The prime money market fund is yielding 4.98%, and once the account is opened it’s really easy to open other funds, like a nice total stock market index fund.

    That in conjunction with a checking account at a local credit union (where, when things go wrong, you can always just go into a branch and talk to someone) keeps one’s finances simple while maintaining a competitive rate!

  5. Jason says:

    Yea, when I used it earlier this year the way it worked was that you opened it your initial deposit(and first account link) only asked for routing and account number. So you can probably add any account you want initially. But I couldn’t find another way to add additional accounts later other than printing out a form and sending a voided check.

  6. JR says:

    I’m curious about samerwriter’s comment. I’ve pretty much ignored money market funds because I don’t understand them. I’ve got other Vanguard accounts, so a fund like Vanguard Prime Money Market Fund (VMMXX) intrigues me.

    It’s currently at 4.98 yield, which is definitely competitive with the familiar savings accounts (Emigrant, HSBC, ING, etc.). Two things give me pause: one, the expenses (.30%) and two, the lack of FDIC insurance. I can get over the lack of insurance, but can anyone explain how I can compare the rates while factoring in the expenses?

  7. denon says:

    I usually keep a small percentage of my savings in a second bank, for the exact reasons you mention. I can’t bring myself to do 50/50, when one bank always has a better rate (and yes, I know all the magic behind the loss of interest while moving, but HSBC has been treating me pretty well for quite a while. Well worth the move.). I’m assuming they’ll stay competitive with Emigrant – or so I hope – I’m always so leary of Emigrants 30day business as well. It just reaks of paypal-like tactics or something..

  8. Rich Slick says:

    Keeping your money in multiple accounts is ALWAYS better than one and here are some examples why:

    1. Had a coworker who had her identity stolen. Upon reporting it to the credit bureaus and her bank she had ALL of her funds frozen at that bank. She couldn’t pay rent, bills, etc for 3 weeks. Some checks even bounced as her account was now “frozen”. This was her only bank account and she couldn’t get her money. Ironically, it had happend the day after she received her direct deposit funds and those too were frozen. She had to wait till the next pay period (15 days) to get some money to live on. Very horrible situation and would have been avoided if she had kept money at two or more different banks.

    2. There are “agents” for the government (varies agencies) that do nothing but scan bank records to find “deadbeats” and “freeze” funds. If you owe any money to anyone (child support, back taxes, state taxes, property taxes, etc) be very very careful. Some of the rules require you to have a certain amount in a bank account before it’s frozen so if you keep small amounts, the accounts will be left untouched and unmolested. For example, you owe $2000 in taxes but only keep $500 in bank A. Bank A will generally be left alone but if you keep $2500 in bank B then bank B will get raided.

    3. Terrorism- too many people on these financial blogs keep their money at either Emigrant or ING – both of these banks are based in New York. If New York gets wiped out, kiss you money good bye. It’s FDIC insured you say? Well, the government’s priority isn’t going to be to give you your money back if New York gets blown up. If you don’t believe that, try looking at some of the footage for Katrina/New Orleans. Try keeping some of your money at a local bank in the city you live in and some in Online account preferably outside of New York (HSBC is in Nevada I think/ Countrywidebank is in Virginia). Keep a third in New York if you must for those high yields.

  9. CK says:

    Mr. Slick-

    My money with Emigrant will be just fine if New York explodes. Emigrant may be based in New York but you can bet they have back up servers spread throughout the country as all major corporations do (I doubt they have any in NYC as it is too valuable real estate). They don’t physically have my money anyhow. Might it be held for awhile if New York explodes? Well sure, but I think we’ll have bigger fish to fry then looking to pay my cable bill.

    As for your keeping just a little in certain bank accounts in case they get scanned by government agents, I’ll chance it.

    Question;
    If my identity is stolen and one bank freezes my accounts, why wouldn’t the other banks?

  10. denon says:

    Actually, Emigrant’s online banking is done by a 3rd party, who’s severs are physically located in Milwaukee.

    Your terrorist-safe choice server location of HSBC, is actually located near NYC, in Buffalo.

    At a glance is looks like ING’s servers are in Pennsylvania somewhere, as are VirtualBank’s.

    As a network engineer, I’m less concerned about someone bombing the servers, and more concerned about someone rolling out a buggy version of the online application. There’s the possibility of numbers getting skewed, if transaction logic getting messed up. Or, someone could inadvertantly screw up authentication, and it take days for them to validate offline backups, depending what happened. I don’t want to be totally broke just because I relied entirely on a single software dev team to be 100% available. This is, of course, leaving out the possibility of someone hacking servers, skewing numbers, and them having to freeze things until they get their audit logs under control, assuming they weren’t messed with as well. Fun, eh?

  11. Alex says:

    Just as an aside to the comment above regarding FDIC insurance, and even thinking that it will get your money back….FDIC insurance is good to $100,000 BUT they have 50 years to pay you back- without interest, of course.

    So don’t even think that it will let you pay your rent or buy your food anytime soon, and when you finally do get it back, with inflation, it will be worth 10% or less of the ‘today’s money’ you lost!

  12. CK says:

    Alex- Not sure where you pulled 50 years from.

    # If a bank fails, what is the timeframe for payout of the funds that are insured if the bank cannot be acquired by another financial institution?

    Federal law requires the FDIC to make payments of insured deposits “as soon as possible” upon the failure of an insured institution. While every bank failure is unique, there are standard policies and procedures that the FDIC follows in making deposit insurance payments. It is the FDIC’s goal to make deposit insurance payments within one business day of the failure of the insured institution. Typically, a bank that has failed will be closed on a Friday. The FDIC will then work the weekend to complete deposit insurance determinations for most deposits and be prepared on Monday to either transfer the insured portion of a deposit to another FDIC insured institution or provide deposit insurance payment checks. (Note: Some deposits that require supplemental documentation from the depositors, such as accounts linked to a living trust agreement or funds placed by a deposit broker, may take a little longer. The timing of the completion of the deposit insurance determination is based solely on the depositor providing the documentation needed by the FDIC to determine insurance coverage.)

    http://www.fdic.gov/deposit/deposits/deposit/faqs/index.html

  13. mapgirl says:

    I’m not sure why Mr. Slick thinks ING Direct is based out of NYC. ING Direct has nice big building in Wilmington, DE off I-95. It’s actually owned by a Dutch entity (ING) and it seems that much of the online bank’s operations are out of Minnesota. Most banks have a branch located in DE because the corporate taxes are low and I am sure any bank will keep on chugging whether or not there is a physical entity in NYC.

    I doubt any self respecting business puts all of their servers in a location that is a terrorist target. Even Google locates their Washington, DC data center outside of the actual Washington Beltway. Heck, even the NSA does too.


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