Several years ago, ING Direct made a name for themselves when they introduced the Orange Savings Account. At the time, the concept of an online savings account was as foreign as its owners, Dutch-owned ING Group, and many folks wondered if the offer was a scam. At the time, I know my credit union’s savings account APY was sub-1% and here ING was offering 2.60%! It was unheard of!

I had my reservations though. First, the company was Dutch so I didn’t know if that had any implications (it doesn’t). I was new to managing my own money so I was always wary of doing something stupid (I still do stupid things). Lastly, I didn’t want to jump too quickly even with the $25 referral bonus dangling out there. Fortunately, my comfort with all things online coupled with my inexperience pushed me towards opening an account at ING Direct and I’m glad I did.

Since then, many banks have begun offering high yield savings accounts and ING Direct has ceased to be one of the top interest rates out there… but it still has some merits and a warm place in my heart.

Account Signup

Signing up for an account takes mere minutes and is actually one of the strengths of ING Direct when ING first started. Back then, opening an account online was practically unheard of. You always had to visit a physical branch so that a teller or account representative could go through the screens themselves. Now, a quick account signup process is the norm.

Account Features

One feature that is noticeably absent from many other online banks is the ability to add new accounts as quickly. Once your first account is opened, subsequent accounts can be added in mere seconds. Everything managed through the same login, which recently benefited from a face lift, and it really does help you save more.

For example, opening new savings accounts are trivial and, given the ability to name them whatever you’d like, you can easily open an account for the purposes of a saving goal. If you have a big expense, such as a vacation, coming up in the future you can set up an account specifically for that. Once you set up an account, you can establish automatic transfers between all of your linked accounts (ING Direct accounts are automatically linked). So, you could set up a monthly transfer from your checking account to your ING Direct savings account and then intra-ING Direct transfer from your main ING Direct account to your vacation savings account. This transferring feature isn’t unique to ING Direct but the ability to add new accounts so easily is.

ING offers a CD laddering form that makes CD laddering a cinch. While the interest rates aren’t especially competitive, the 12 month CD is 3.40% APY and the 60 month CD is 4.00% APY (compared to FNBO Direct’s 3.50% APY high yield savings account), this feature is the only one of its kind I’ve seen available anywhere. When their CD rates become more competitive, I can see this form getting a lot more use.

Overall, I was very pleased with ING Direct. While their rates have lagged their competitors lately, I think the intuitive and friendly interface really puts new online banking customers at ease. I have accounts at Emigrant Direct and HSBC Direct and their banking screens look very antiseptic and austere. While you can’t judge a book by its cover, ING Direct does a great job putting the softer elements into its interface that puts someone at easy.

J.D. Power & Associates puts out annual customer satisfaction surveys in all types of industries from automobiles to finance to insurance to travel (and many more in between). When they published their annual scores for finance companies late last year, I wanted to write about it to see how some of the companies I work with performed against their peers.

Author’s Aside/Note: I know it’s a little late but this one had been sitting in the hopper and I felt that I should post it anyway.

The Finance category itself is broken up into retail banking, mortgage related, and credit card groups. At the time I first wrote this, I didn’t think the mortgage ratings were that interesting so I skipped over it. I chose to focus on the two services I used more - retail banking and credit cards. While I don’t discuss the mortgage ratings, go check out how well Countrywide Home Loans did (hint: not well).

Retail Banking

The Retail Banking scores were rated based on geographic region:

• Mid Atlantic: Commerce Bank (Bancorp)
• Midwest: Commerce Bank (Bancshares)
• Southeast: Bancorpsouth Bank
• Southwest: Wachovia Bank
• West: Bank Of The West

If you happen to have a Commerce Bank nearby and are a current customer (and you have kids), they’re running a summer reading program where kids can earn $10 for reading ten books.

Online savings account darlings WaMu and HSBC made appearances on the list as well (I looked primarily at the Mid Atlantic listing because that’s where I live, I suspect the scores are similar for the same banks). WaMu scored four points in overall satisfaction (with the highest score of 5 points under the Fees category) and HSBC scored three points. This past weekend we went to a wedding in Williamsport, PA, home of the Little League World Series, and saw scores of Sovereign Bank branches. Sovereign Bank scored a mere two points overall (and across the board). It was also funny to see M&T Bank’s whole name written out, Manufacturers & Traders Bank; I use them for my business banking and they’ve kept me very “satisfied.”

Credit Cards

In the Credit Card Satisfaction category, American Express edged out Discover for the highest rating in overall satisfaction and received the JD Power & Associates award. I personally use the American Express Costco TrueEarnings card because because I shop often at Costco and because it gives me 3% cash back on gasoline purchases (we also use a Discover Open Road card but that card caps rewards). My wife used to like their AMEX Blue card but it was recently replaced with the Citi CashReturns card because of the unlimited 1% cashback (and it once offered a 5% cashback on everything for the first three months).

The three companies that led up the rear with two points (out of five) were Capital One, Bank of America, and HSBC. I’ve never had a credit card from any of those companies. It’s interesting that when you arrange them by Overall Satisfaction (by clicking the sort arrows), HSBC appears below Bank of America. Bank of America has 2 points in all five categories while HSBC has three points for Rewards Program yet still appears below BoA. There must be some granularity within those points not captured somewhere.

Brokers

Finally, the investment broker category was the last of the categories I was interested in and it was broken into Full Service Investment Firm Ratings and Online Investment Firm Ratings. Raymond James took home the award in the Full Service Category and Scottrade (barely edging out Vanguard) took top honors in the Online Investment Firm Ratings.

I thought it was interesting that the only other “discount” online broker that made the list (TradeKing, Zecco, and many others didn’t make the list) was E*Trade Financial and they scored only two points.

With it being August, the 2008 ratings should be coming out soon in a few months. It’ll be interesting to see how much shifting around occurs with some of these scores.

Despite what I wrote in Beware False Indicators of Bank Health, there is a certain amount of comfort in having a physical bank location to go to. A few years ago, a physical brick and mortar bank meant that you weren’t ever going to get close to a high yield saving account’s interest rates. However, several national brand name banks have begun offering high yield online savings accounts in order to compete for your deposits.

I used the list of the 20 largest banks, according to FDIC information current as of May 2008, and only found five banks that offered high yield savings accounts. I was surprised not to see Washington Mutual (3.75% APY) on the list of the largest 20 banks.

#1 Citigroup - 2.25% APY

This New York, N.Y. based bank had approximately $2,199,848M in deposit assets as of May of this year and Citigroup has a high yield online savings account, known as their Ultimate Savings Account, offering a pedestrian 2.25% APY (They have an MMA offering 2.65% APY with bill pay). They used to have a standalone e-Savings account offer but it appears that you are now required to have a linked checking account and the interest rate is a laughable 1.50% APY. (To find this, go to Citi, click on Banking near the top, then click on Savings in the left sidebar, and look for Ultimate Savings Account)

#7 HSBC North America Inc. - 3.50% APY

HSBC, located in Prospect Heights, Ill. with $493,010M in assets, is also the namesake of HSBC Direct - a high yield online savings bank offering a 3.50% APY interest rate on its savings account. I wrote a review on HSBC Direct recently and was surprised to find that I was able to link the account to other high yield savings accounts (ING Direct in that case).

#11 Citizens Financial Group, Inc. - 3.30% APY

Whoops! Citizens Bank Direct is a division of Citizens National Bank, not Citizens Bank. CNB Bank Direct is still a high yield bank but it’s not affiliate with a top 20 bank. (Thanks zashachic!)

Citizens Financial Group is the holding company for Citizens Bank and they just entered the high yield online savings game with Citizens Bank Direct, offering a 3.30% APY interest rate. I don’t know much else as their online offering is brand spanking new (CNB has been around since 1920) but I did find a brief review of CNB at Bank Deals.

#14 Capital One Financial Corp. - 3.50% APY

Not surprisingly, financial services company Capital One has an online savings account offering called the Capital One Online Savings Account (clever huh?) offering 3.50% APY on balances over $10,000 (you earn 2.50% APY if your balance is under $10,000).

#17 BB&T Corp. - 1.75% APY

It’s almost embarrassing to list this but BB&T offers a high interest online savings account that offers 1.75% APY with no minimum balance requirement and no monthly maintenance fees.

The Rest

These banks were on the list but didn’t have high yield savings accounts. Many had money market accounts but none were strictly high yield savings accounts: #2 Bank of America Corp., #3 J. P. Morgan Chase & Company, #4 Wachovia Corp., #5 Taunus Corp., #6 Wells Fargo & Company, #8 U.S. Bancorp, #9 Bank of the New York Mellon Corp., #10 Suntrust, Inc., #12 National City Bank, #13 State Street Corp., #15 Regions Financial Corp., #16 PNC Financial Services Group, Inc., #18 TD Bank North, INC., #19 Fifth Third Bankcorp, and #20 Keycorp.

List of 20 largest banks provided by infoplease.com (based on FDIC data), Photo by thetruthabout.

I just received an email that Washington Mutual will be raising the interest rate on their online savings account from 3.30% APY to 3.75% APY. This beats the rates of 3.50% APY rate found at FNBO Direct and HSBC Direct. It’s also a sign that interest rates are headed up. (FYI, FNBO’s top rate isn’t a “promotional offer” and has no set expiration date, HSBC Direct’s rate is a promotional offer and is set to expire in September)

With inflation heading upwards, the rate was 1.0% in June 2008, it’s getting more and more likely that interest rates will also move upward to counter. The Fed doesn’t like high inflation rates and will counter with increasing the funds rate, which will in turn increase bank’s interest rates. Whether or not that’s good for your pocketbook in the long run remains to be seen, there are simply too many factors pulling at one another, but a higher bank interest rate is better than a lower bank interest rate.

Update: For some reason I thought FNBO and HSBC were at 4.50% and mis-typed 3.50%, they’re not, they’re at 3.50% and now they lag WaMu.

HSBC Direct recently sent out an email to account holders notifying them that the 3.50% APY promotional rate was being extended an additional month to September 15th. The email is a bit silly, it’s obvious that customers like higher rates for longer periods, but the rate is good. 3.50% APY is among the best in the nation and one of the largest from a reputable, brand-name bank.

Is it worth it to transfer funds from one bank to another for this rate? Probably not, but opening a new account doesn’t cost you anything (no minimums, no fees) so you could always put new savings into this bank. I have several of these high yield accounts and when I’m looking to save, I simply transfer from my checking account to the bank with the highest rate. This leaves me with several online bank accounts and goes a little against the simplifying my personal finances concept, getting the best yield is worth a little extra headache.

Dear JIM,

Customers like you have told us how much they love our big fat rate. And as far as our customers are concerned, we can’t give them too much of a good thing. So that’s exactly what we’re going to do.

* You’ll keep earning 3.50% APY* on all balances in your Online Savings Account.
* That’s 9x the national savings average.±
* Deposit more now to take full advantage of our great rate extension.

Now’s the time to watch your savings grow. So deposit more today.

Deposit more now Sincerely,
Kevin Martin
Executive Vice President,
Head of HSBC Direct U.S.

The New York Times recently released a great series about consumer debt called The Debt Trap. One common thread in several of the videos is the devastating effect “emergencies” can have on your personal finances. A medical emergency, a job loss or cutback in hours, all of these emergencies were weathered, in the short term, with credit cards. In the long term, the credit cards charged high interest rates, piled on fees, and made it extremely difficult to recover. It’s like telling someone to pause for five minutes in the middle of a foot race so that you can strap on a 100 pound rucksack. You might catch up, but probably not.

This underscores the incredible importance of having an emergency fund. The economic climate is pretty rough right now. IndyMac went into conservatorship, Wachovia announced they were slashing 11,000 jobs, and the price of oil gyrates in the triple digits. The stock market is down and there’s a lot of red in those brokerage accounts. The last thing on most people’s minds is boosting that emergency fund. But now is the most important time to focus on your emergency fund.

In times of prosperity, it’s easier to weather emergencies without a plan. Bonuses are bigger, regular and OT hours are more plentiful, and there is less fear that you’ll lose your job. Boosting an emergency fund isn’t fun, but neither is crushing debt, bankruptcy, eviction, and the unfortunate feelings that come with it.

Feel your job is 100% safe? That’s great, but that’s actually not the most devastating emergency. About about half of all bankruptcies are the result of medical bills. You can’t predict the future, but you can prepare for it.

How To Start a Fund?

It’s very simple, get your check book, get your budget, and open an account at HSBC Direct (review), they are currently paying 3.50% APY. If online banks make you uncomfortable, open one at your local bank. A fund at 0% APY is better than no fund at all.

You’ll want to save at least six months of expenses, which you can tell from your budget (you budget right???). Try to accumulate that over [insert comfortable time period here]. The faster you do it, by sacrificing some discretionary spending now, the better.

Another option is to ladder your emergency fund in certificates of deposit. One place that makes it very easy is ING Direct but their current rates are all in the 3.30% APY to 3.00% APY range, less than HSBC Direct’s standard high yield savings account rate, so I would put it in HSBC Direct for now.

What are you waiting for?

(Photo: c.violette.run)

A few years ago, the only high yield online savings account available was ING Direct. Their rates blew people’s minds. Until then, the only way to get that type of interest rate on an essentially 100% risk-free asset was to lock it up in a 60-month CD. Even today, check out the rates for CDs of your local bank and you’ll be hard pressed to find one under 60 months that comes close to beating the rates of high yield online savings accounts.

Now the landscape is slightly different (and more crowded). There are half a dozen reputable banks offering these high yield savings accounts and they differ by fractions of a percent. At the moment, FNBO Direct is offering 3.50% APY with no stated end and HSBC Direct is offering a 3.50% APY good until at least September 15th. E*Trade isn’t far behind with a 3.30% APY, ING Direct sports a 3.00% and Washington Mutual boomerangs in with a 3.75% APY. You would do far better with your funds in any one of those banks than in the one you’re in now (probably).

On Interest Rates

Despite what you may think, interest rate isn’t everything when you’re trying to decide which online bank to put your deposits. It’s important, but there are many other features to consider. Even if you had the FDIC limit available to save in an account, the difference in interest earned between FNBO Direct’s & HSBC Direct’s 3.50% APY and ING Direct’s 3.00% APY is $500 before taxes. If you’re in the 25% tax bracket, that’s a take home difference of $375. You might say - that’s nearly $400, that’s a big difference! Remember that’s on a balance of $100,000… if you’re putting in $10,000, that’s only a difference of $37.50. If you’re talking $5,000, that’s a difference … you get the idea.

Interest rates change frequently. Between when I opened my E*Trade account and when I funded it, the rate fell from 3.50% APY to 3.15% APY (it’s now that 3.30%). Unlike CDs, there is no guarantee on the rates. You get whatever the bank feels like offering. So if you pick a bank based on rate alone, you could be making a mistake because those rates chance quickly.

Don’t decide on rate alone, it’s the features of the account that are important. Those features will help you in save more.

Feature Set

Linking High Yield Savings Accounts:
I was surprised when HSBC Direct let me link my HSBC Direct account with my ING Direct account. The ability to transfer from one high yield savings accounts to another is great, it cuts your transfer time in half (the alternative is to transfer to an intermediary checking account). I was surprised because many other accounts don’t let you do that. You can’t log into an ING Direct account and link it to the HSBC (or E*Trade or Emigrant Direct) account because they require a paper check. In fact, to my knowledge, only HSBC Direct (of the major banks) lets you link up to other online savings accounts (I could be wrong).

Corollary: Linking to Brokerage, Checking Accounts:
The one advantage E*Trade has over the competition is that you can link your savings account with a brokerage account. This allows you to transfer funds instantly between the two, so you’re earning the best possible rate on your cash. E*Trade also has a checking account and that can be linked to the savings account, maximizes the rate.

Washington Mutual, E*Trade, and ING Direct all offer a high yield checking account, in addition to the savings account. You can get checks, an ATM card, and access to your funds whenever you need them. WaMu has the added bonus of brick and mortar branches, if you have one nearby then that’s a definite plus.

Create Additional Accounts Easily:
ING Direct makes it absolutely painless to create sub-accounts. Each of these accounts have their own account number, but they are managed through one customer login. This is valuable because it helps you save more money. If you are able to create a new account for each of your savings goals, you’re more likely to actually save. Planning a cruise over the holidays this year? Open the Carnival Imagination 2008 account, schedule monthly transfers, and start packing your bags. You’re more likely to save because: 1) you’ve made it automatic with monthly transfers, 2) you can see the account grow, rather than seeing some master account grow and “remembering” some of it is earmarked for the trip (or your children’s education, or a new house, etc.)

ING isn’t the only bank that offers this, HSBC does too (Emigrant Direct does not), but they are definitely the easiest.

Promotions:
This is the least important “feature” about a bank. ING Direct has had a standing referral bonus of $25 for new accounts. Click a referral link, deposit more than $250, and you’ll receive $25. The referrer earns $10. HSBC used to run a $50 promotion that expired several months ago but, to my knowledge, no one else has ever run that type of promotion.

The Best Online Bank

The best online bank is the one that has the features you need. If you have savings goals and are having a difficult time achieving them, perhaps ING Direct is your best option. If you don’t need the help and want the highest rate, HSBC Direct has the highest rate.

If you want the flexibility of checking, ING just released their checking program while WaMu and E*Trade have had checking products for quite some time. If you have a checking account at the same bank you have the high yield savings, you can transfer between the two instantaneously (plus the interest rates on the checking accounts are far superior to standard rates).

So don’t pick a bank on interest rate alone, pick the one that offers the types of services that will help you reach your goals.

(Photo by Hummy)

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.

When HSBC Direct raised their savings account interest rate to 3.50%, I opened an account. I didn’t open it because I was planning on moving funds from a 3.00% ING Direct account, I did it because the cost of opening an online savings account was near zero and because I could then start funneling income deposited into a 0% Bank of America checking account into the new HSBC Direct account. It doesn’t make much sense to move funds from ING or Emigrant to HSBC, but it does make sense to change the destination of funds from Bank of America.

There were a few other non-financial reasons for opening the account. First, there’s no marginal cost to opening another savings account. HSBC has a well known international name and has consistently been among the leaders in interest rates. I would be hesitant to open an account at a lesser known bank. HSBC’s international presence is also a benefit. When we were in China and Taiwan, HSBC was everywhere (along with Citigroup) and that’s a side benefit. Lastly, my mom has an HSBC account, in part because of the China and Taiwan presence, and having that link is convenient as well.

Opening An HSBC Account

The HSBC account opening process is quick and painless (~10 minutes), though it requires more information than most banks because they try to set up everything in one pass. You start by giving the typical personal information all banks ask including social security number. They do a quick inquiry and ask you for three items from your credit history. Then, you get the option of linking a bank account right there.

They verify your bank account by requesting your login credentials and then login. My bank account was linked within seconds (and the transfer was initiated). No more waiting 3-5 business days for two small deposits, the verification process is done right there. Very nice touch.

After about two days, HSBC starts sending you emails (there are quite a few) about your registration, how to log on and set up your account for the first time. Specifically, they’ll email you a link to the Internet Banking Activation page and a registration code, but don’t bother going trying to activate until you get your temporary password by postal mail. Yeah, they mail your temporary password by pony express.

In all fairness, the letter got here pretty quickly. I opened my account on June 4th, received my temporary registration number by email on June 6th, and received the temporary password on June 7th (the letter was dated June 5th). However, because of the mail, any time that was shaved off in the bank linking portion is now definitely lost waiting for a password via mail (probably why they do that). It’s all done in the name of security but it strikes me as a bit unnecessary and overkill.

From here, you go to the activation page, enter in those codes, set up your account access credentials (which includes a username, password, and security key that must be entered by on-screen keyboard), enter two security questions, and you’re in! (whew!)

Bank to Bank Transfers

One of the features of online savings accounts that was once allowed but now stopped by many online banks was the ability to link online savings accounts. I used to have my Emigrant Direct and my ING Direct linked together so a transfer took only a handful of days, but about a year ago they severed the tie and began requiring paper checks to link accounts together.

Well, I was curious as to whether HSBC would let me link up with ING Direct and they did! I submitted a request through the Bank to Bank Transfer online form, HSBC made two trial deposits to my ING Derect account, I verified the transaction and the link was created. It’s important to remember that Federal Reserve Regulation D limits the number of transactions on a savings account to six a month, so I just expended two in the verification process.

Quicken & Money Data Support

Quicken and MS Money data addicts users will be happy to know that HSBC Direct offers support for both applications (for Quicken, you get Windows and Mac version support).

Thoughts

At the moment, I’ve been playing a little with my account and it seems pretty standard compared to other online savings accounts I’ve had. The one noticeable difference is that it’s not as sleek as the ING Direct interface and there doesn’t seem to be any way for me to easily create additional accounts. Of course, only ING Direct offers that option at the moment so it’s not like HSBC is really inferior to peers.

Overall I’m pleased with HSBC Direct so far.

Here’s another, incredibly comprehensive, HSBC Direct review written by your good friend and mine, Cap.

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)