Here is a list of the nationally available best CD rates, updated regularly. I looked at the best rates available for CDs of less than 18 months and listed the one with the highest rate. Typically the longer the term, the higher the rate, but for many online banks the best rates were for periods of shorter than 18 months. For simplicity’s sake, I put the cutoff at 18 months.

This list will be updated as rates change, I will try to keep it as up to date as possible.

Best CD Rates

FDIC Insurance: Each bank is FDIC insured up to $250,000 through the end of the year. You can confirm this by checking the FDIC’s Bank Find tool. The only bank on the list I hadn’t heard of was Dime Direct, they are owned by The Dime Svgs. Bank Of Williamsburgh (Cert #16012). Oh, and Bank of Internet is an FDIC insured bank in San Diego, CA - Cert #35546.

As a reference, the current Federal Funds target rate is 2.00% (New York Fed).

Smart Money named Zecco the worst in customer service in their 2008 Smart Money Best Broker Survey and many of the comments on my Is Zecco A Scam? post seem to echo the experiences of Smart Money’s reviewers. If you read the comments, they range from “Eh, you get what you pay for, it’s not bad.” to “Zecco sucks and Zecco is only for non-serious amateur traders arguing over couple of bucks here and there.” (Lee)

I said I’d fund my account there but I never did. One reason was because I was confused by the two separate logins, one for the community and one for my brokerage account. Then, the comments about the poor customer service starting rolling in and Zecco changed from free trades to 10 free trades if you had over $2,500 in your account, so I decided it wasn’t worth the trouble. The reality is that I opened a high yield savings account and brokerage at E*Trade ($9.99/trade) and then a TradeKing account ($4.95/trade) to write a review of TradeKing. With two brokerage accounts plus my retirement accounts, I figured another one with reported bad customer service wasn’t worth it (especially if I’m trying to simplify my personal finances! I’m going the wrong way!).

In truth, I think that people expect too much from Zecco. While the change in free trades to 10 free trades with a minimum balance was a bit “bait and switch”-y, you’re still getting ten free trades worth at least $50 a month (assuming 10 trades at $4.95 each at competitor TradeKing). But the maxim of “You get what you pay for” still rings true. If you want better customer service, pay the $4.95 a trade (or more); if you don’t care about customer service, then Zecco might be right for you.

On the other hand, should you be trading ten times a month? Most people shouldn’t be trading ten times a month, so your actual total benefit isn’t $50 a month, it’s less. In fact, I haven’t made a stock trade in several months (not that I’m the poster child for a disciplined investor). If you’re more a mutual fund type, you can trade those for free if you open an account at that brokerage. At Vanguard, you can invest in many of their no-load funds without any transaction costs whatsoever. Free trades at Vanguard!

So your trade-off of poor customer service is for a couple of trades a year, which is not worth it in my opinion. And that’s why I never funded my account.

(Photo: comicbase)

E*Trade just sent out an email notifying us that the interest rate will be increasing from 3.15% APY to 3.30% APY, effective tomorrow, July 2nd. This takes their interest rate from 6x the national average to 8x the national average. This is a better rate than both ING Direct ($25 sign-up referral bonus) and Emigrant Direct but less than the 3.50% APY available from HSBC Direct, but that rate is only guaranteed through September 15th.

There’s no mention of how long this rate will be active but E*Trade is on an upward rate trend, as are other banks, and there’s no indication this is a promotional offer.

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)

Last week I wrote about a little preview to the SmartMoney 2008 Broker Survey in which SmartMoney released some preliminary results from their annual ranking of brokerage firms. SmartMoney has published the full details of their report and I’m sad to say that TradeKing did not retain the top spot they enjoyed the last two years (third place isn’t bad!).

Summary

SmartMoney changed the way they listed their rankings a little this year. Last year, they separated “discount” and “premium” brokers. Compare the tables from 2007 versus the tables from 2008, they went from three (premium, full-service, discount) to one (umm… everything).

Of the 2008 top 5 (they were, in order, E*Trade, Fidelity, TradeKing, TDAmeritrade, Charles Schwab), only TradeKing came from the 2007 Discount Brokers bracket and they took the third spot (so one could argue they are still reigning champs of the Discount Broker conference?), the rest came from premium brokers.

The Winner: E*Trade

E*Trade snagged the top spot this year with nearly five stars across the board. They also shared a nod for the best trading tools with TD Ameritrade and topped the list for best banking services (sharing that one with no other brokerage). When you can offer an interest rate of 3.25% on your holdings and not require thousands and thousands in the bank, it’s no surprise they were given the nod there. I personally enjoy using E*Trade for my stock trading because of this convenient link between the bank and brokerage.

Incidentally, in 2003’s rankings, E*Trade scored 9th in the “basic discount broker” category because of their $22.99 a trade commissions. It’s amazing what five years and “listening to feedback” can do for you.

The Top 5

Looking strictly at stars, not much separated the top five. While the criteria were not equally weighted, each one scored five stars in at least two categories and a minimum of three stars in each (in fact, only TD Ameritrade had two three-star categories, every other broker had only one).
Here were the concerns (and my comments) about the top five:

1. E*Trade: None listed, they are so perfect.
2. Fidelity: Commissions were on the high side, at $10.95, I agree. Though I don’t really consider Fidelity a discount broker (in 2007, they were considered “premium”).
3. TradeKing: Weaker fund selection, though they were noted for low commissions ($4.95 a trade).
4. TD Ameritrade: No negatives listed, though they only gained three stars in banking services. Their interest rate on cash of 0.1% was the lowest of all the sixteen listed brokers by far (second lowest was #9 Scottrade at 0.5%)
5. Charles Schwab: Is Schwab really a discount broker? Commissions run $12.95 a pop, hardly “discount” prices, but they had only three-stars in customer service.

TradeKing: 2007’s #1 Discount Broker

They probably got hosed this year by the rejiggering of categories (they had to update their little award picture!) since they were the only one of the top five to have come from last year’s discount category. Of the top ten, they were the second cheapest to Interactive Brokers (a firm I hadn’t heard of before this year’s survey) by a significant margin (after TradeKing, second cheapest was Firstrade at $6.95, a 40% difference). TradeKing did score a ribbon for best customer service and were the only firm to earn five stars in that category.

Zecco: 14th of 16th - Ouch!

What about #14 Zecco with their free trades? (they get a lot of blog press) They scored very weakly across the board for each of the five categories (one star in Trading Tools, Research, and Customer Service) though they received special citation for the worst customer service of the bunch. The $0 per trade offer is a compelling offer but if you’re looking for some hand holding, you won’t get it. Tou get what you pay for ($0). If you only need a broker to enter your trade into the market, Zecco is a good deal; if you’ll ever need to talk to someone about anything… you might as well slide up the commission price chain and go with someone like #6 Firstrade ($6.95 a trade) or #3 TradeKing ($4.95 a trade). You shouldn’t be trading so much that much anyway (though Sharebuilder, the epitomy of buy and hold, took dead last).

There you have it, another year, another brokerage survey from SmartMoney. If you’re looking for a bank and brokerage in one, I personally recommend E*Trade because they make it easy to link up the two (open up one account and you can open the other within minutes online), which can be a good or a bad thing.

Source: SmartMoney’s Annual Broker Survey [SmartMoney]

Smart Money reviews brokers every single year and they recently just gave a preview to their results. Rather than give the straight ranking, they discussed some headline categories (Commissions & Fees, Research, Trading Tools) and then listed the best and worst from each category.

For best commissions and fees, they listed Interactive Brokers, a brokerage firm I hadn’t heard of but does charge pretty rock bottom fees (half a cent per share on equity trades). They also showed the spread was anywhere from $4.95 for TradeKing to $112.50 for Fidelity on broker-executed trades.

For research, my Roth IRA brokerage, TD Ameritrade, took the top honors with Zecco and SoGoTrade splitting the worst place ribbon. One interesting point made was that J.D. Power’s research showed that good research trumps trade execution and customer service with regards to overall satisfaction. I found that pretty surprising since there is a wealth of free investing information out there but trade execution and customer service is where the rubber actually meets the road. If they can’t execute your trade or if you can’t get on the phone with someone in a few minutes, that’d be a deal breaker for me.

Last but not least, E*Trade and TD Ameritrade snatched the number one and one-a spot for trading tools with Sharebuilder playing caboose. It’s not surprising because Sharebuilder isn’t for the typical trader, it’s for people looking for an easy way to reinvest their dividends back into equities. TradeKing’s social networking area got a shout out as did Zecco and WellsTrade, but that was because they offered less than half the thirteen tools their researchers were looking for. Thirteen tools? Wow.

Anyway, check out the preview, I’m eagerly anticipating their results and whether TradeKing will need to update their current banner and call it a three-peat.

SmartMoney’s 2008 Broker Survey

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.

When I was first approached to review the book titled Beating the Market, 3 Months at a Time, I thought I was looking at one of those “invest in this hot new sector, you’ll be rich in three months.” Then I saw that the publisher was Financial Times Press and that allayed my concerns some more, FT Press isn’t going to put out some day-trading, hawkerish type book and, this is something I learned later, neither of the authors are your BS snake-oil salesmen types.

The book isn’t about day-trading, though Gerald Appel is well known for his technical analysis and marketing timing (Gerald Appel created the Moving Average Convergence / Divergence technical indicator), but about active investing and how it can yield higher returns than “buy and hold” strategies. By active investing, they mean that you can use their strategy to review your portfolio once ever three months (rather than the often advised once a year rebalancing act). So, through active investing and a one hour review every three months, you can beat the market with their proven investing plan. That’s the promise they’re making.

Basic Investing Education

Beating the Market begins by educating the reader on how to put together an investment portfolio, what your goals should be, how you should approach it, and is generally a good primer on investing in general. For example, it’s important to note that you want to get a rate of return greater than the risk-free investments you have available to you. I could put my funds in an E*Trade Online Savings account and get 3.15% risk-free, so my investments have to beat that. (usually the benchmark is money market funds and 90-day T-bills) Another goal is to manage the risk of your investments, something individual investors are notoriously bad at. Emerging markets are always hot and can return big double digit returns, but they can also lose big doubt digits… are you getting enough return for the risk you’re taking?

It Gets Complicated, Quickly

After the eight page primer on putting together a winning investment portfolio, the books slices right into diversification and risk management. I don’t want to recap the entire book but the topics it covers run the gamut from discussing ETFs and emerging markets, to the purpose of bonds in your portfolio, to special bond market investments, and end with discussions of retirement, planning for the political impacts, and an appendix chock full of resources. There is even a chapter called the Definitive Portfolio in which they build out a well diversified example portfolio with a mix of two types of bonds, two types of ETFs, and one overseas component.

The Investing Plan

So what’s this plan I spoke of earlier? The plan is the whole book. By understanding all the pieces of your portfolio (including risks, investment profiles, and all the nitty gritty described in each chapter) and how diversification works to reduce your risk, you can actively participate in the management of your portfolio without having to pay a manager 1-2% of your investments. That’s what active means in their plan, not day trading.

There’s a lot of information in this book and it’s definitely one I will be reading more closely over the next few weeks. There are discussions about high yield “junk” bonds and about the international markets that I glossed over, two things I know very little about, so if you have it at the library or bookstore (I tend to borrow all my books from the library) I wholeheartedly recommend that you pick it up.

If you visit the E*Trade homepage, you’ll see a big yellow star that names E*Trade the #1 premium broker of 2007 by Smart Money magazine and “Best of the Breed” in Money Magazine in August 2007. If you visit the Scottrade homepage, you see a blurb about a J.D. Power and Associates Award for “Highest in Investor Satisfaction with Online Services” award. And if you visit Zecco homepage, they don’t have any awards posted. Does that mean E*Trade is better than Scottrade and Scottrade is better than Zecco? Maybe, maybe not! So I wanted to match up all the awards and ratings and come up with my own ranking of the best online discount broker.

The List: I started with all the Premium and Discount brokers from Smart Money 2007 Brokerage Ratings page and then removed anyone with commissions greater than $10. That left me with E*Trade, Banc of America, TD Ameritrade, WellsTrade, Scottrade, Firstrade, WallStreet*E, SogoInvest, TradeKing and then I added Zecco, simply because they offer $0 trades, and Sharebuilder, because they offer a unique discount purchasing program. I removed Banc of America, WellsTrade, and TD Ameritrade because they’re affiliated with larger banks, I wanted standalone brokers.

Best Discount Broker: TradeKing

TradeKing is running a $50 promotion this month where you can get $50 for opening a new TradeKing account, depositing at least $2500, and making one trade.

TradeKing was named #1 Discount Broker by Smart Money magazine in 2006 and 2007. Barron’s gave it four stars in its rating system. At $4.95 a trade plus a very competitive money market sweep account and low options fees ($4.95 a trade and 65 cents a contract), there are good reasons to list TradeKing first. When it comes to discount brokers, TradeKing appears to be the one with both cheap prices and enough performance clout (see the awards) to give me confidence that the low prices don’t mean poor service.

E*Trade

E*Trade, one of the priciest of the online discount brokers, with a $9.99 trade commission, has won several awards in its own right. #1 premium broker of 2007 by Smart Money magazine and “Best of the Breed” in Money Magazine in August 2007. One startling ranking was one for Kiplinger’s in 2006, where E*Trade was rated 9th (the only other online discount broker on the list was Firstrade at #4 - #1 was optionsXpress but their trades cost $14.95).

Scottrade

Scottrade was rated the highest in investor satisfaction by JD Power & Associates and beat out all other comers on the list, including E*Trade and TD Ameritrade, which is amazing considering trades cost a mere $7. While the scoring for this was for satisfaction and not scope of offering (though it does include information resources and trade execution), which many other awards are based on, it still speaks volumes about the happiness of Scottrade customers.

SogoTrade

SogoTrade, once known as SogoInvest, is as bare bones as you can get, running the caboose of the discount broker train according to Smart Money magazine. To be honest, you can’t expect much at $3 a trade and you don’t get more than the ability to trade. I looked for awards but there were none to be found.

Zecco

If SogoInvest is the caboose, where does that leave Zecco and it’s zero cost commissions? Not a single award to go on, Zecco does offer ten free trades a month if you have a balance over $2,500 but they score last in customer service. While the free trades offer is nice, is it really worth that much? Hardcore traders complain that ten isn’t enough. Novice traders shouldn’t be trading ten times a month. With no name recognition and little to offer, I’d skip them.

Sharebuilder

Sharebuilder isn’t really a discount broker in the traditional sense because you pay $4 a trade but it has to be done on a schedule, meaning the following Tuesday. So in a sense you can buy stock at a cheap price but you have less control over it. Sharebuilder was recently acquired by ING Direct and they’re also, currently, the only broker to offer promotion codes for free money.

The Awards Sites

Below are links to the award pages I could find:

Update: Smart Money just released the results of their 2008 Brokerage Ratings.

Smart Money 2007 Brokerage Ratings - The rankings from 2007 listed TradeKing as the number one discount broker, their second in a row. The full ratings, in order from best to worst, were Scottrade, Firstrade, OptionsXpress, Muriel Siebert, WallStreet*E, SogoInvest.

2006 Kiplingers Ratings - For a $50,000 account, the rankings were: optionsXpress, Muriel Siebert, Wells Fargo, Firstrade, Fidelity, Vanguard, TradeKing, Schwab, E*Trade, Scottrade, and TD Ameritrade.

For JD Power & Associates, I invite you to search on their site.

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 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? Here’s my short list.

Best Bank: FNBO Direct - 3.50% APY!!!

This bank is my number one choice. With a compelling 3.50% APY savings account offer, FNBO Direct stands better than the rest of the bunch. FNBO Direct and wrote up a review of FNBO Direct. There’s no minimum deposit to get this rate and no monthly fees. 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.

#2a. E*Trade

E*Trade, known more as a discount broker than as a bank, takes the number two-B 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.

#2b. WTDirect

WTDirect is the online high yield savings account offering from Wilmington Trust FSB (FDIC #33911), headquartered out of Baltimore, MD and in operation since 1994. They offer a 3.31% APY savings account that puts it in the top 5%. There are no monthly fees, no minimums, 0% liability guarantee for unauthorized transactions, and no checking account requirement. One thing that separates WTDirect from other banks is that they allow you to have an unlimited number of linked external accounts, most limit you to three.

#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? The rate of 3.25% APY just doesn’t match up. I recently opened an HSBC Direct account and until recently, they’ve been consistently high in rates. Their accounts offer decent features though they lack the easy of use that ING provides. The minimum amount you need to deposit to get the best rate is $1.

#4. 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. Unfortunately, after the recent Fed rate drop, ING Direct has fallen to 2.75% APY. 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.

#5. Emigrant Direct

Emigrant Direct probably has the least amount of branding power among the high yield savings account banks 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.

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. (oddly enough, these high yield savings accounts tend to pepper the lower end of the best CD rates)

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.)