The bad news is that interest rates are on the rise. Credit, loans and other types of borrowing have become more expensive as the prime rate increased from 6.75% last October to 8.35% this October. Consumers who are carrying a lot of debt may be feeling the pinch.
On the flip side, the good news is that rising interest rates also mean
rising savings rates. High yield savings accounts are now offering
annual yield rates as high as 5.25%. Compare that to a standard bank savings account that offers you a meager 0.50% annual percentage yield (APY). That’s so low that your savings aren’t even keeping up with inflation!
Let’s do the math. With a $5,000 balance, you can $275 in compounding interest through a high yield savings account versus $37 in interest with a bank savings account. That’s a major difference!
Plus, it’s easy to open a high yield savings account online. There are now several different financial institutions to choose from since the market expanded significantly. Here’s a breakdown of the different services you can choose between:
- ING Direct - 4.40% APY with no fees, service charges or minimums. Plus, great online security and easy online transactions. I have had a savings account with this company for a few years.
- EmigrantDirect – 5.05% APY with no fees, service charges or minimums. Seems to have a few usability and customer service foibles.
- AmboyDirect - 4.28% APY for balances over $3,000. 1.00% APY for balances above $300. Minimum balance requirement of $100. Limited to three free withdrawals a month. May have some other fees, it’s unclear.
- HSBCDirect – 5.05% APY with no minimum balance and no fees. Has some cool offline connections that allow you to deposit and withdraw from HSBC branch ATMs.
- CitibankDirect – 5.00% APY with no minimum balance. There are some fees for opening your account initially and you are required to open a checking account too. Also has offline deposit and withdrawal opportunities.
Do you already have a high yield savings account? Report your experiences and warnings in the comments section below!
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I have noticed that a lot of banks now do hard inquiries against your credit report just to open a checking or savings account, while other institutions are satisfied with a soft inquiry. Given that soft inquiries get an institution the information they need, why must some institutions damage your credit report with a hard inquiry? Is there anyone trying to pass any legislation to prevent this in future? It seems unfair that your credit score declines when you are lending a bank your money.
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This article is a little old and things have changed quite a bit. High yield online checking accounts are now outperforming online savings accounts. Banks such as Venture Bank Direct are offering 3.5% APY on their online checking.