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 FNBO Direct (FNBO Direct review, or pick any one of these high yield savings accounts), 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)

This is comprehensive review of the best online banks, specifically those with a high interest savings account and high yield savings accounts available (high interest refers to the interest rate and all these banks have above a 3.0% APY interest rate). Everbank, FNBO Direct, E*Trade, HSBC Direct, ING Direct, and WTDirect 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 - 3.25% APY!!!

This bank is my number one choice. With a 3.25% APY savings account offer, FNBO Direct stands strong versus 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.

#2. Everbank

Everbank is my number two choice since it has such an appealing first year rate. When all other online banks are in the 3% APY range, you have to take notice of a bank willing to offer over 4%. Everbank is FDIC insured, has been since 1998 (FDIC Cert. #34775), and they have one of the best rates available.

You may not have heard of Everbank before but they’ve been around for quite some time. They were named “Best of the Breed” by Money Magazine, “Best Checking Account” by Kiplinger’s Personal Finance with a yield that is 10 times the average account, and was even named “Best of the Web” by Forbes.com five years in a row. This isn’t a bank that popped up in the middle of the night, they have been around the block and proven themselves to be a reliable place to store your money (and a great place to earn above average interest).

#3a. 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.

#3b. 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 3.06% 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.

#4. 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 3.00% 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.

#5. 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.

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.)

Look! It’s a new credit scoring system for the credit bureaus! Isn’t that great!? It is, except it doesn’t address any of the problems I see with the credit reporting industry. In my mind I have a set of features I think all the credit bureaus should institute if they want to clean things up and make life easier for everyone. As great as that sounds in principle, the problem is that consumers aren’t the primary customers of credit bureaus; banks, credit cards, and other lenders are. All the features I’m about to list are ultimately great for both parties but I think the bureaus are too short sighted to realize this, but I’ll scream into the abyss and ask for these things. Maybe Congress can do something useful and force them offer these. (some of these features may or may not be already available, I haven’t checked, so let me know it’s already available!)

Easily Freezing and Unfreezing Your Account

This is one feature that companies offer nowadays and some states require it, but ultimately it’s very difficult to do. The bureaus should offer online account access that lets you freeze and unfreeze your account with the click of a button. You don’t want credit, tell them to freeze your account and not to let any requests through. If you want credit, log in, unfreeze it, apply for credit, when you’re granted it, freeze your account again. Yes, I understand that that credit bureaus want you to pay for this service but when they’re giving away your information for a fee, it’s not unfair for them to offer this simple service to you.

Email Notification of Inquiries

At a minimum, set up a service in which credit history requests trigger an email that gets sent to an email account of your choosing. Again, I realize that this has costs associated with it but roll that into the cost of a credit inquiry in the first place. It can’t possibly be all that expensive, per inquiry, to set up a system in which an email can be sent out.

Option To Accept or Deny Inquiries

Now, let’s say you opted to keep your account unfrozen, you get email notifications, what if you could accept or deny inquiries? You could deny all those unsolicited credit requests but keep all the legitimate ones, hopefully you can keep them straight in your head.

Reject Non-Perfect Inquiries

When I reviewed my credit recently, I had an incorrect address and two social security numbers listed on my account. I thought to myself - “how could I possibly have two social security numbers!?” When I asked the bureau, they said that sometimes that happens and that errors often result in inaccuracies in one’s history. The social security number was close but one number was wrong, isn’t that grounds to deny a request? Apparently not! Apparently, according to the CSR, it happens all the time. Well, I think it shouldn’t happen all the time and that it should happen, um, never.

If Nothing Else, How About A Password

So you apply for a credit card, enter in your credit bureau password. If nothing else, this is the easiest way to ensure that the request legitimately originated from you in the first place. This seems so simple to me that it should’ve already been implemented.

How This Helps Banks, Lenders, Credit Card Companies

Financial institutions shouldn’t be trying to deluge every single person in the world with credit card offers, they should be deluging those people who want to be deluged. It’s called targeted advertising, it’s why beer commercials are shown during football games, it’s why jewelry commercials are shown during the holidays and Valentine’s Day, and it’s why you see clothing and fragrance ads in men’s and women’s magazines. You might get a few errant signups by shotgunning the masses but it’s far more effective to send offers to those who are interested.

Lenders may complain that this will slow the credit process down (and these will), but if you’ve been reading the news, don’t you think it the market could’ve used some slowing down? Credit was flowing too fast for too long and now the likes of Citi, HSBC, Bank of America, Countrywide, and company are feeling the pinch. Slowing down isn’t necessarily a bad thing, unless you’re the one waiting to be bailed out. How is this related? Sometimes what you expect to be bad, in this case a slowdown in the credit approval process, might actually be good.

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.