5.05% APY is a pretty healthy yield and one of the highest in the nation now (top high yield savings accounts) that the Fed has been pulling interested rates down (much to the chagrin of overseas travelers and those shorting gold) so last week I opened up an E*Trade Complete Savings account yielding exactly that. To open an account, just go to this application page and submit your information. Now, here are a few tips after you open the account as I found the start-up and activation process to be a little confusing (it was the first time I called up the help services of any bank to assist me with opening an account, if that’s any indication).

Incidentally, E*Trade Bank is FDIC insured and has been since June 23, 1955; much longer than I had thought they’d been.

Online Access

After you create the account, you can log into E*Trade but the account won’t immediately appear. At first I chalked it up to the account not being established yet; but after I received all the account documentation in the mail and didn’t see the Complete Savings account listed in my Accounts Complete View, I was surprised. Apparently what you need to do is click on the “Banking & Credit Cards” tab located at the top of your screen and then look for an “Apply for access” link. I thought I already applied! Anyway, there will be three boxes that appear for you to enter in your social security number, your account number, and your zip code. After that, you new account will appear. I’m not sure why this is necessary or why none of the introductory material had a “Get Started” section to explain this. Another way to reach this is to find the link that says “Don’t see one of your accounts?,” that’ll bring you to the same page.

Adding External Accounts

When you first open your account you need to add an external funding account, I added my Bank of America account since everything funnels through there. Well, the initial $100 was withdrawn but I can’t immediately transfer money yet - I have to verify it! To do that, look for the “External Account Added” in the “Alerts” section to the right of your screen, click that and then click on “Verify your external account now” in the window that pops up. That will take you to a page that details the external account, click on the Verify link next to the “Verified on:” text label. (There are about a million ways to get to the verification page, so don’t fret).

Now there are two ways to verify an account, username and login or two small deposits. I’m willing to wait and go the two deposits route even though they claim that “Your external account login information is maintained within a secured session and will not be stored to perform this verification.” That’s okay, waiting 2-3 business days for two small deposits is acceptable.

What I don’t understand is why I need to verify an account that already has been debited in the first place. My Bank of America account was used to fund this account so why would I need to verify it one more time? The only time this makes sense is if I were to open up a bank account in someone else’s name (knowing all their information), gave it an initial deposit, but didn’t want that person to have access to my bank. Is that scenario common? I wouldn’t think so. I am pretty sure every other bank I’ve worked with has automatically added the initial funding link without having to go through this process.

Fast Help Desk

I did have to call 1-800-ETRADE-1 (1-800-387-2331) to find this and it took me about two minutes to reach a representative (it was also 8AM this morning), very quick considering I didn’t feverishly hit “0″ in an attempt to reach a representative ASAP. They were very helpful and we resolved this issue, probably something they hear all the time, in about a minute. Unfortunately, I have no basis for comparison because I’ve never had to call ING Direct or Emigrant Direct for anything.

There are five finance related accounts in the personal finance world that I think every single person must have and they should get it as soon as possible. They run the gamut of the obvious, an accessible checking account, to the not so obvious, a high yield savings account (as surprising as it sounds, this is not obvious to most people because they are amazed when I tell them you can get 5% from a regular savings account). So, please enjoy this list of five accounts you absolutely must have and three that you absolutely must avoid.

These Five Accounts You Absolutely Must Have

1. High Yield Online Savings Account

Number one definite must have account is a high yield savings account getting you at least 4%, at the very very least. If you assume inflation at around 3%, anything less and you’re losing money. Take your pick of ING Direct, FNBO Direct, Emigrant Direct, Citi, and you’ll get over 4%. My recommendation is that if you have a Citi or an HSBC bank account, go with one of them because your transfers will be instant between accounts. If you don’t, I use FNBO Direct but both they and HSBC offer 5.05% APY.

2. Savings and/or Checking Account at a Credit Union

A relationship with a credit union is an absolute must for anyone looking to ever get a loan for anything. The typical rate for a 5 year loan on a new car from Tower Federal Credit Union (some local credit union in my area but I do not have an account there) is 5.74% (currently they have a promotion where the rate is only 5.34%) and for a used car it’s 6.19%. Compare that with a Bank of America rate of 5.89% for new and 6.54% for used. While the difference isn’t all that great, for the typical rates, why pay more than you have to? Also, the interest rates on your savings and checking accounts will typically be higher as well.

Why are the rates low on loans and higher on savings accounts? It’s because the basic premise of a credit union is that it’s there to pool the collective resources of its members and work for its members. It’s a not-for-profit so it’s not looking to earn money off you, at least as its primary focus, and so that’s why the rates are always so much more favorable than a regular bank. Whereas a bank is FDIC insured, credit unions are covered by the National Credit Union Share Insurance Fund (NCUSI) administered by the National Credit Union Administration, so you’ll see NCUA-insured on the placards (also up to $100k).

3. Retirement Account (Roth IRA, 401k or equivalent)

If you have a job and your employer offers a 401k, with or without a match, you should be participating in your 401k (or an equivalent depending on your employer). If you can, budget-wise and income-restriction-wise, definitely participate in the Roth IRA as well. Just as how squirrels save away nuts for the winter, you should be doing the same through a tax-advantaged retirement account. The 401k will let you save pre-tax money but it will be taxed when you take payments in retirement. A Roth IRA will let you save money post-tax but it won’t be taxed when you take payments in retirement. It’s important to use both so that your retirement assets are tax diversified.

4. Accessible Checking Account (Ubiquitous ATMs)

I think that most checking accounts are pretty much the same and it really doesn’t matter which bank you go to, with several exceptions and the biggest one is the location of its branches and ATMs. I chose to do my main banking with Bank of America because they have a branch near my home and my work place plus they have ATMs everywhere. In fact, BoA has 16,000 ATMs and 5,700 branches, so that I can probably find one anywhere I go and I can avoid those stupid ATM fees everyone hates.

5. Credit Card Account

If for nothing else other than to have a safety blanket, having a credit card builds credit and will pay dividends down the road. You can leave it out of your wallet or purse and it’s still building you some solid credit because it’s lengthening your credit history. Don’t ever carry a balance either.

These Four Accounts You Absolutely Must Avoid

1. Store Branded Credit Card Accounts

We’re talking department store credit cards, the ones where they offer you 10% off today’s purchase if you’re approved, and you should avoid these because the APR on these babies are usually pretty high and the payoff, the 10% off, is usually not worth it. If you want free cash for credit cards, here’s a list of credit cards with sign-up promotional offers that you can take to the bank and spend the rest at the store.

2. Finance Accounts From a Dealer, Store, or Anywhere That Isn’t A Reputable Bank

Buying a car? Buying a TV? Avoid the financing from the auto dealer or the electronics store unless it’s a 0% APY for a year, or something great like that. Also be aware that if you do get that offer, it’s likely that once it ends, all of the interest that was deferred during that period will come due (read about how 0% financing offers work). It’s a very insidious practice but one that’s well documented but not well explained to borrowers. If you need a loan, try to get it from your bank or credit union either before you buy or immediately afterwards. If you can get some sort of discount or promotional offer for using their financing, you can always use their financing and then secure your own afterwards.

3. More Than One Checking or Savings Account

This one isn’t that big of a deal but you really should consolidate your banking for a few reasons. First, it’s always better to simplify your life and deal with as few things as necessary. There’s no sense trying figure out which account has what because you’ll start to go crazy. Secondly, you want to consolidate balances so that they’re higher and you can avoid any low balance fees if your bank has them. Lastly, the fewer accounts you have the fewer opportunities there are for your information to be compromised, either by the bank or by you on accident. Simplification is crucial.

4. Reward-less Credit Card Accounts

Your credit card is charging each merchant you deal with somewhere in the neighborhood of 2-3% for each transaction, there’s no reason why you shouldn’t get kicked back a little piece of that. It takes about thirty seconds to apply for a card that will give you 1% cashback on all of your purchases, which is an automatic 1% discount on everything you buy. I use a variety of cards but I like my Citi mtvU card for 5% cashback at restaurants, movies, and bookstores; a Discover Open Road card for 5% cashback on gas purchases; and an American Express Costco TrueEarnings card for 1% cashback everything else with no annual limit.

I’ve recently been getting a lot of emails asking what I recommend for folks looking to open a high yield savings account and, having not kept up to date with the APYs, I didn’t really have much advice other than that they should take advantage of the ING Direct new account referral bonus and then select either FNBO Direct or E*Trade for their main online savings account. (which actually turns out to be good advice)

Until recently, there were a couple folks in the high yield category, including Citi e-Savings, Emigrant Direct, and HSBC. However, just a few days ago the Citi e-Savings dropped their yield down to 4.75% so they are no longer in line with the leaders of the back (I define inline as within a tenth of a percent or so). Unfortunately, ING Direct hasn’t tried to keep up and Emigrant and HSBC are the current leaders in the clubhouse.

Now, HSBC recently announced that they’d offer a promotional interest rate of 6% for new funds until the end of April, giving you a little less than three months of interest earnings - not enough incentive for folks with existing accounts (you lose yield by moving the funds around because of the lag) but it’s a good reason for people without accounts to open one and put their funds there (assuming it will fall back to the 5.05%).

So, in a nutshell, here are where the major (in my mind) online savings accounts stand in terms of interest yield:

• HSBC: 6% until 4/30, then 5.05% presumably. (if I didn’t have an account, I’d open it here)
• Emigrant Direct: 5.05%
• Citi e-Savings: 4.75% - One plus of this account is that you can link regular Citi accounts to it and transfer money very quickly.
• Virtual Bank: 4.6%
• ING Direct: 4.5%

ING Direct & Virtual Bank Referral Bonuses:
If you know someone who has an existing ING Direct or Virtual Bank account (I have both, please email me if you want a referral or go to the self-serve ING Direct $25 Promotion page), they can send you a new account referral and you can earn money for signing up. For ING, you’ll need to deposit $250 and you can get a quick $25 (the referrer gets $10). For Virtual Bank, I’m not sure what the minimum is but you get $20 for signing up (so does the referrer). Once you have an account, you can refer up to 25 people for ING and 50 for Virtual Bank.

Caveats to Online Savings Accounts:
With the high yields come some inconveniences that are consistent with savings accounts but that you may not be familiar with because of how you use savings accounts. For example, there is an FDIC limit of six transfers to and from any one particular savings account (reasons are in the linked post) and there is generally a nearly one week lag for moving funds. The one week lag is because the savings account generally doesn’t having an associated checking account, like you would normally, and so in order to access the funds you’d need to ACH it to another account - that ACH process can take five business days. A workaround is if you have a Citi e-Savings account because you can link it to a regular checking account and the transfer would be internal to Citi and immediate. So, with the higher rates, you have to suffer some inconveniences - it’s not as bad as a certificate of deposit though!

If you want to stay current, I recommend visiting Bank Deals, they do a great job getting the latest and greatest info out to you and they also do a weekly summary that has this sort of information, but in greater detail, which is linked to from their sidebar under Weekly Bank Deals Summary.

Extra extra! ING Direct just raised their interest rate on their high yield online savings account from 4.35% to a whopping 4.40%! If it weren’t for the $25 referral bonus (if you are referred by a current account holder, use this self-serve $25 ING Direct promotion page if you want a referral link) I don’t know why anyone would sign up with them if you can get 5.15% from Emigrant Direct.

Since I haven’t been home for the last week, I haven’t yet signed into the new Emigrant Direct until today and the process was pretty painless. All you need is that mailer they sent out maybe three weeks ago with your “Secure 10 Digit Access Code” and your memory (birthday, social security, login username). If you never received your secure 10 digit access code, call up Customer Service at 1-800-836-1997, they’re open seven days a week from 8am until 11:30pm ET.

The next part gets a little tricky, you will have to provide answers to some set questions and then create another set of questions and answers that will act as secondary security protections for your account. For example, one of the preset questions is what was the last school you attended and you must supply the answer. Personally, ten questions is a little ridiculous but it’s all in the name of security… Finally, you have to agree to three disclosures (I did and I’ll review them later, hopefully I won’t see something new that I don’t like) and then you’re done!

About the new Emigrant Direct, it looks a lot slicker to be honest… I took a perfunctory look at it and you can download the data into Quicken, MS Money and as a CSV (Excel) which is definitely an improvement I think. I personally don’t use either program so I don’t remember if the old Emigrant had that functionality. Otherwise, there doesn’t appear to have much functionality improvements, just interface ones, but I’ll take the new look over the old look any day!

If there are big things I’ve missed, please do share!

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.

Welcome ZDNet readers of Greg Sandoval’s article “System glitches hit two banks’ online services,” I thought given the latest website problems of Emigrant Direct you might find a recent article I wrote most appropriate. The article is titled Spread Your Savings Across Multiple Online Banks and it discusses why you might not want to put all your savings into just one online bank. Enjoy!

If you’re an Emigrant Direct account holder, keep an eye out in your mail in the next few days because ED will be sending you a small little letter about their new website interface and new rate information.

Important Notice For American Dream Savings Account Holders

We’re proud to announce that on Monday July 24th, 2006, the new EmigrantDirect.com website will be launched. We’ve listened to your comments and worked hard to give you a better online banking experience. Very important: In order to access your account, when prompted, you must enter your new secure access code. Your new secure access code appears below.

Also included, right under your secure 10 digit access code, is a note that they’re raising rates to 5.15% effective July 28th, 2006 too. Not bad!

Emigrant Direct announced today that the APY on their online savings account is now 5.0%, keeping it competitive with every other online savings account out there. They also increased their MyWay CD rates from 5.0% to 5.35% with minimum opening deposit at $1000 and minimum maturity of 6 months.

While competitive rate wise, Emigrant has no sign-up bonuses. ING Direct offers a $25 referral if you deposit $250, please visit the ING Direct referral page if you want a referral. HSBC is offering a $25 Best Buy card for new account openings though you “must be a Best Buy cardholder to qualify for gift card offer.”

Yep, HSBCDirect, who has been offering some of the more aggressive rates amongst well know names, and Emigrant Direct, which has seemingly followed lockstep, have increased their online savings account rates to 4.80%. Comparatively, slowpoke ING Direct is still down there at 4.25%.

Promotions: ING Direct offers a $25 referral if you deposit $250, use this self-serve $25 ING Direct promotion page if you want a referral.

A big thank you to John for the heads up on the rate update for HSBC. On May 1st, HSBCDirect Online Savings Account rate will change to 4.5% APY, which matches Emigrant’s current rate. Account holders were notified by email recently:

We are writing to let you know that beginning May 1, 2006, your HSBCdirect Online Savings Account rate will change to 4.50% APY. This is one of America’s leading rates and still 8x the national average, so you can continue to watch your money grow.

With HSBCdirect.com, there are no fees, no minimums, no lock-up period, and your money is FDIC insured. You can stay confident your money is in the right place and earning the most it possibly can.