Before Washington Mutual was acquired by JP Morgan Chase, in better times for the bank, they offered a yield on their online savings account that was tops in the land. Since then, the rate as fallen to 2.25% APY, which doesn’t even register on the radar of high yield savings account rates, and so I opted to close my account when I opened a Dollar Savings Direct account.

This is the first online savings account I have ever closed and I had no idea it would be such a headache. I don’t know if this is unique to WaMu’s policies or if it’s universal to online savings accounts but it was a pain. First, let me tell you about my experience and then I’ll explain the easiest way to do it.

How To Improperly Try Close A WaMu Account

In Maryland, there are no convenient WaMu branches to visit so I would have to do it by mail. Yep, they can’t close an account over the phone, which makes sense but is quite infuriating. The first time I called, I was told that I needed to zero out the accounts (I had both checking and savings) and then I could close the accounts by phone. So, I transferred all the funds out of my checking into my savings and then initiated a transfer out of savings. The checking to savings transfer was instantaneous, so I immediately closed my checking. I was told I could just call back in a couple days once the savings was zeroed out and could close that by phone. That was wrong.

What happened was that once the checking was closed, the $300 minimum daily balance requirement kicked in for the online savings account. I was assessed a $4 fee, overdrawing the account! When I called today, I had to fight with the call center CSR, who had no power but the follow the script she was given, to understand the actual process, then escalated to a supervisor who reversed the $4 fee. Overall, the experience with the call center CSR, through no fault of her own, was frustrating and infuriating but the supervisor was accommodating and great.

How To Properly Close A WaMu Account

There are rules as to how you can close out interest-bearing and non-interest bearing accounts, just forget about them. You only need to know the two ways to close a WaMu account:

1. Visit a branch and close it with a teller. I didn’t have this option, but this is by far the easiest.
2. Send a letter to WaMu’s Bank By Mail, indicating that you want to close your account. You’ll need to provide your account number (which you can get by viewing one of your statements through online banking) and a return address so they can send you your balance by check.

The mailing address for that letter is:
Washington Mutual BBM
PO Box 659588
San Antonio TX, 78265-9588

Don’t close any accounts over the phone, you’ll just end up decoupling your checking and savings and be hit with fees.

(Photo: Sërch)

The bailout bill and its failure to pass the House, coupled with the 777 point fall of the Dow at the beginning of the week, has really dominated the headlines recently so it’s not surprising that not many people have focused on this bit of news - the FDIC managed to broker the sale of Washington Mutual to JPMorgan Chase and parts of Wachovia to Wells Fargo (link) Citigroup and they didn’t bankrupt themselves (or go to the government for more money).

For weeks (if not months), people have talking about how the failure of Washington Mutual, the largest thrift with $307 billion in assets, and the failure of Wachovia, who had a loan portfolio of $312 billion, would bankrupt the FDIC. The FDIC isn’t entirely off the hook though, the FDIC is backing some of the downside loss on the bad debt, but as it stands right now they managed settle two big issues without much loss.

If you’re curious as to the details of both deals, here’s an article about JPMorgan Chase acquiring WaMu assets and here’s an article about Wells Fargo buying up Wachovia’s deposits and banking business. While it still remains to be seen whether everything involving these banks is OK, it definitely two headaches off the radar for now.

Do you think we should applaud the FDIC for dodging a huge bullet (at least for now)? Or did we just shuffle the deck chairs?

(Photo: Sërch)

With the very public and very large failure of WaMu, you might be wondering what happens to all those nice, fat 12-month 5% APY certificate of deposits you may have recently opened. In the case of WaMu, it appears as though JPMorgan Chase will be honor those CDs to term. If you review the FDIC’s FAQ on the WaMu takeover, “JPMorgan Chase accepted Washington Mutual’s interest bearing accounts including CD’s at the contract rate; therefore, they are not waiving early withdrawal penalties.” That means the CD’s will stay the same (in fact, you probably could open a 5% APY CD right now and it would still be honored, though you can close to that high of a CD rate at other banks).

The WaMu example is an example of a best case scenario, where nothing happens except the name of the bank on the statements. The best case scenario is that a bank acquires the deposits of your failed bank and continues to honor the CD’s terms as JPMorgan Chase does. (Of course, this depends on what your definition of best case is, if you got locked into a long term low interest rate from a few years back, maybe best case is they cancel all the CDs!)

Not all cases end this way, but even the worst case scenario is no big deal. The worst case scenario is that the FDIC is named the receiver, no bank buys the deposits, and they terminate the CD. Even in the worst case, you get all of your insured money back (just a little earlier than you anticipated).

Or, skip all the CD hullabaloo and stick the funds in one of several very popular and totally liquid high yield savings accounts.

(Photo: thetruthabout)

(Updated 11/18/08) 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 1.00% (New York Fed).

The word on the street is that JP Morgan Chase is buying parts of Washington Mutual after the FDIC seizes the country’s largest thrift. I guess all the reports of WaMu’s demise were not so greatly exaggerated.

The government on Thursday made the largest bank seizure in American history, taking over Washington Mutual, the severely troubled savings and loan, and selling pieces of it to JPMorgan Chase in an emergency deal intended to avoid sticking the taxpayer with a bill for another bank, according to people briefed on the plan.

Game over WaMu.

(WaMu account holders should read this FAQ that Chase published to learn what’s new)

Government Seizes WaMu and Sells Some Assets [New York Times]
JPMorgan Chase May Acquire Washington Mutual After FDIC Seizure [Bloomberg]

Update: The 5.0% APY Online CD is no longer available.

A month or so ago, Washington Mutual (WaMu) offered a 5.00% APY 12-month CD, one of the best interest rates on a 12-month CD available (I wrote a post listing the best CD rates available, updated weekly). ING Direct’s 12-month CD is 4.00% APY and HSBC Direct’s 12-month CD is 3.70% APY, WaMu is offering a rate that’s a full point higher for the same term. (If you check Bankrate’s list of CDs, the national overnight average is 3.69% APY, WaMu’s CD isn’t even listed)

Right now I have some CDs at ING Direct because I laddered our emergency fund, but the rates are all in the 3%’s only recently have they gone up. The rates these days are far more competitive and I’ll be opening a WaMu account so I can take advantage of the one-two punch of a high yield checking/savings account combo and this 5.00% APY CD.

While I’m pretty sure you don’t need a checking/savings account to open a CD, I think it’d be easier to use their 3.75% APY checking account as a holding account. It certainly trumps my piddly 0.00% APY checking account for sure. Plus, having a checking account there costs nothing (except time) and it makes it easier for me to move things around if WaMu keeps things competitive.

Details of the offer:

• 12-month and 13-month terms offer 5.00% APY.
• Here is a detailed listing of their fees, though I don’t see anything about CDs.
• The minimum to open a CD is $1,000.
• An early withdrawal penalty applies, though I couldn’t find it. I’d bet it’s the standard 90-day interest lost.
• The account is managed entirely online, you won’t be able to visit a branch to open one.

(Photo: thetruthabout)

WaMu failed and was acquired by JPMorgan Chase, if you don’t have an account yet, I recommend going with FNBO Direct or one of these high yield savings accounts.

Washington Mutual sent me an email today indicating that they will be increasing their high yield savings rate from 3.75% APY to 4.00% (at midnight tonight, if you read this on Monday), which will beat all the banks on my list of best online savings accounts by at least half a percent (FNBO Direct is second with a 3.50% APY interest rate).

Nothing else will change about either the Free Checking or the Savings account offer, you can read my brief WaMu review to learn more about the accounts.

There have been concerns lately that WaMu was facing some liquidity concerns (mostly in the chaos that was last week, but the FDIC did send a MOU) but they are FDIC insured up to the same $100,000 as every other insured bank. WaMu benefits from the fact that its short term financing can come from deposits, rather than short term borrowing, so it’s not as exposed as investment banks. If the liquidity issue still concerns you and you don’t trust that FDIC will make you whole (it will), your next best option is FNBO Direct with a 3.50% APY rate or opening a CD somewhere else. I haven’t read a single thing about them having problems and they too are FDIC insured.

With all the recent bank failures and looming potential failures (WaMu is on everyone’s radar now), a lot of people are worrying about and searching for information about FDIC insurance. The FDIC, short of the Federal Deposit Insurance Corporation, is a government corporation that insures banks deposits up to, generally, $100,000. The corporation was created after the Great Depression to dissuade individuals from going to banks and withdrawing their money if they though the bank was going under. With the insurance protecting the deposits, there would be no need for people to ‘run’ to the bank to withdraw their funds before a potential collapse. With many banks, a bad situation is made fatal because of a run.

FDIC Insurance Coverage Limits

In a nutshell, each person at each institution has $100,000 of coverage under FDIC insurance limits. If you have less than $100,000 in deposits at an FDIC insured institution (they will have signs, or you can confirm by using the FDIC’s Bank Find tool or calling them up and asking - 877-ASKFDIC). There are certain assets at a bank that are not covered by FDIC and they include any debt issued by the US Government (bonds, bills, notes, etc.), stocks, bonds, and similar investments, as well as anything in a safety deposit box.

Each of those is covered by something else. US Government securities are backed by the government, stocks, bonds and similar investments are protected against fraud by SIPC insurance, and the safety deposit box is generally under the protection of your renters or homeowner’s insurance policy.

The worst thing you can do to a bank is to withdraw your funds. If you have less than $100,000, you’re protected by the FDIC; if you have more, then you have just cause in withdrawing your funds. When you withdraw your funds, the bank has to find the cash to give you. Since they’ve lent out so much of it, they have to figure out ways to get it back to you. Now multiply it by thousands of people withdrawing money, your classic “run on a bank” scenario, and you’ll see why banks collapse and must be rescued by the FDIC.

So, the best thing to do is to keep your deposits under $100,000 at an FDIC insured bank and relax. If the bank fails, chances are you will have access to your funds a couple days later (FDIC usually closes banks on a Friday and re-open them on Monday). When IndyMac collapsed, it was closed for Saturday and its doors were open on Monday as IndyMac Federal Savings Bank. When NetBank went under, people couldn’t log in for a day or two and then they all had access to funds via ING

How To Get More Than $100,000 Coverage

If you’re rolling the dough, the easiest way to get more than $100,000 of coverage is to deposit it at separate banks. The insurance covers you for $100,000 per person per institution so you would only need to spread your money out across multiple banks. With many of the best savings accounts within a percentage point of each other in interest APY, you don’t sacrifice much by spreading it around.

There are also ways to structure your accounts at a single bank such that you get more than the standard $100,000 of coverage. The easiest way is for a couple to put both of their names on a joint account, this increases coverage to $200,000 for the couple ($100,000 each). Remember, the coverage is on the person and not the specific account so you can’t just open more accounts at the same bank for more coverage.

Another way is through the use of Payable-on-Death (POD) accounts if they’re structured as revocable trust account. A POD account has listed beneficiaries and the account owner is insured up to $100,000 for each beneficiary. It gets a little complicated but Bank Deals has a good two part article on the subject (Part 1, Part 2). I’m not an FDIC expert (and to my knowledge, neither is Ken at Bank Deals, so consult a financial professional to confirm what you read).

For anyone wondering what will happen to HSBC Direct’s 3.50% APY, wonder no longer. As of today, 9/16, the rate will fall from 3.50% APY to 3.25% APY. It appears that they’re shifting emphasis over to their CDs from their online savings account as the 6-month CD rate is 3.75% APY, 0.25% higher than the original savings account rate. Oddly enough, their 12 month is giving 3.70% APY.

Of the best savings accounts, this puts Washington Mutual with their 4.00% APY online savings account rate farther ahead though the liquidity and capitalization concerns pushed their stock down BIG on Monday. If you are worried that they’ll go under, FNBO Direct (division of First National Bank of Omaha, which has been in business since 1857) is offering a 3.50% APY and there hasn’t been a peep about them having solvency problems.

This is only a concern for people wondering where they should put their next dollar. I wouldn’t move my funds from HSBC Direct to FNBO Direct or WaMu because the 0.25% to 0.50% APY difference isn’t worth the interest you would lose as the funds shifted from one account to another.

WaMu Fails, Try 3.50% APY FNBO Direct

WaMu was recently acquired by JPMorgan Chase, which is a bank not known for its high interest rates. You should consider all rate information in this post to be out of date and likely to drop as the transition takes place. My recommendation is that you stand pat if you do have a WaMu account but if you’re looking for a high yield savings account, FNBO Direct is your best best with a 3.50% APY and no hint of news about failure. You can check out this FNBO Direct review for more information about them.

At the request of a reader, and because I enjoy wrecking my attempts to simplify my personal finances, I just opened a Wamu Free Checking and Online Savings account, the only bank I didn’t have an account at on my list of high yield savings accounts. (I also did it because Nickel said it might be interesting to see an FDIC takeover from the inside, should that ever happen with WaMu (the media reports aren’t looking good though)).

Opening An Account

Why both the Free Checking and the Online Savings? You have to if you want to get the 3.75% APY rate, so I did. Both require only $1 to open. but the online savings account has a monthly maintenance fee if your daily balance falls under $300 (at any time). So if you can’t keep $300 in your online savings account, don’t open one because the $5 fee will eat away your savings (the online savings account is the one giving 3.75% APY). I take it back! Thanks to everyone who read the terms more closely than I did, it turns out the fee is waived when you open both accounts.

The process for opening is really quick and took about five minutes tops. One little gotcha (depending on what you consider a gotcha) is a checkbox on the personal information screen at the bottom where you can elect to buy checks or defer until later. I don’t plan on using the checks and I don’t know how much they cost, but by default that box is checked. (turns out the checks are free)

Opening Deposits, Confirming Account links: The whole confirming an account link and opening deposits was a little confusing. First, you need to wait for WaMu to make two small deposits to your linked account - that takes a couple days. Then, after you log in and enter in the small amounts, they send you an email confirming the account link up. Ok, so far so good, but then you need to wait a few more days as they transfer the opening deposit amounts. That takes a few more days. It isn’t until after that opening deposit can you transfer in more funds. If you try, the system will tell you that the link hasn’t been established yet (rather than a more accurate statement, such as the opening deposit hasn’t been processed yet). The process took about two weeks to complete (including my own lag in entering the trial deposit information).

Account Summary

The account summary screen is pretty standard stuff though it is more functional than many other online banks. The account summary screens of FNBO Direct and HSBC Direct, the two other banks with similar interest rates, were bare bones by comparison. The bank with a similar amount of functionality on their account summary screen is probably ING Direct, but their rates are a little farther back.

Account Security

WaMu doesn’t use security images, special image keyboards, or any of the other newer security related technologies. They rely on three security questions and an automated calling system to verify identity for certain transactions. I personally thought security images were useless, you do better by practicing safe banking (don’t click a link in an email, don’t log in to an untrusted computer, etc). Special keyboards were more hassle than they are worth (HSBC Direct has you enter a password and use their special keyboard). Three security questions is good enough (emigrant has twelve!). For some, all those security options offer a sense of safety, I personally think they’re annoying (however, I haven’t had an incident so maybe my tune will change if/when that ever happens).

Applying for the 5% APY CD

At the moment I’m still waiting for my deposits but I rolled through the CD opening process, it’s almost as easy as ING Direct (but with a much higher rate!). Simply click on the “Apply for a new account…” link in the sidebar on your Account Summary page and you’ll be taken to a list of accounts you can open. Click on Online CD and you should see the 5% APY offer for 12-month and 13-month CDs. You then go through the same application process as before, which was a bit of a hassle considering they have all this information already (they do verify your DOB and SSN with the information you’ve already provided, which seems like an unnecessary step). It’s no big deal though, once you get through you hit funding options and can open your CD.

Summary

The biggest draw about WaMu, besides their high interest rate, is that there are brick and mortar banks you can visit if you need to. They call them WaMu Financial Centers and you can use a store locator to find out if they have a branch near you. Unfortunately the closest financial center for me is all the way in New Jersey. You might have closer!

As for the rate, you can’t beat a 3.75% APY from a brand name bank. Their 5.00% APY CD is also a compelling offer but the whole liquidity and FDIC issue still sits in the back of my mind. I only have a few hundred bucks in there right now, easily under the FDIC limits, and you can’t let fear of the unknown affect your decisions. It’s 100% safe so take the interest while you can (which could be for a long time), right?