Interest rates are still pretty low as we enter 2010, but I remind people that high nominal rates aren’t always better. Would you rather earn 3% with no inflation or 7% with 5% inflation? In any case, most of us have a chunk of cash and we should still try to earn the most no matter what the rate environment is like right now.
High-Yield Reward Checking Accounts
These are checking accounts that are still fully insured and pay a very high interest rate, as long as you jump through certain hoops each month. This also means that if you make a mistake you’ll forfeit virtually all your interest for that month, so it can be tricky. But for the very diligent, their rates are still averaging around 3-4% APY up to a certain balance limit. Here are a couple of the highest current account available nationwide:
- Royal Bank of Missouri has their Majestic Checking paying 4.30% APY on up to $25k, which requires 10 check card purchases each month, a direct deposit or ACH transaction per month, and online statements only.
- Sierra Reward Checking at 4.09% APY on up to $25k, which requires 12 check card purchases each month, a direct deposit/auto-withdrawal, one BillPay per month, and online statements only.
Online Savings Accounts
These accounts pay a yield that at least a full percentage point (1%) higher than any current money market fund, while still providing easy access and safety with minimal hassles. The primary drawback here is that you are limited to a maximum of 6 withdrawals per month, as it is a savings account. Here are account that represent the range of the best current rates.
- EverBank is offering 1.10% APY for the first 6 months for new accounts. This rate is higher than any 6-month certificates of deposit currently available, which being available for withdrawals at any time. The rate is guaranteed stay in the top 5% of competitive accounts.
- Alliant Credit Union has a non-promo savings account rate of 2.00% APY. Membership is restricted to people with affiliation to a qualifying organization, but the cheapest way around this is to become a member of a PTA or PTO.
- Ally Bank Online Savings offers their “no fine print” savings account rate to 0.85% APY as of 11/12/13. No minimum balances, no monthly fees.
- Veteran online bank Capital One 360 holds up the lower end at 0.75% APY.
Certificates of Deposit
If you are willing to restrict access to your money for a while, your yield can go a bit higher, but not that much. On the other hand, if you think rates will stay low, it may be worthwhile to lock some rates in. Keep an eye on the early-withdrawal penalties if you do think you’ll need to withdraw.
- 3-Year CD at Pentagon Federal Credit Union will get you 3.0% APY. (6-mo. early withdrawal penalty.)
- 5-Year CD at Pentagon Federal Credit Union will get you 3.5% APY. (6-mo. early withdrawal penalty.)
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I’m a smartypig fan, their bank is in Des Moines Ia and they have an APR of 2.01% and I like the way they do business.
If you want interest bearing Checking and don’t want to bother with the hassle of debit transactions check out Alliant Credit Union for 1.75% without limit.
Check it out here if you are interested. The only requirements are electronic statements and direct deposit.
http://www.alliantcreditunion.org/depositsinvestments/checking/
Don’t forget the Costco online savings account – with the bonus ~1.9%. Unlike the other accounts, though, due to push from Costco will likely remain very high. Also, Capital One has blistering fast transfers with very high limits. I’ve had them complete practically same day!
HSBC online savings also offers 1.34%.
FYI: Last I knew, Alliant does not verify which qualifying organization you belong to.
I don’t think PTO membership qualifies you for Alliant membership, and certainly nothing on their site suggests that. I believe they have a relationship with the National PTA that also covers their affiliates, Since PTOs have no affiliation with the National PTA, they wouldn’t be covered under that deal.
@balor123: Thanks. I am costco member and this seems to be a great deal. Also HSBC takes 3-4 days to get money transferred.
I was a ING customer since 2006 but switched to Ally 6 months ago. Then Ally’s interest dropped quite a bit so I decided to finally give rewards checking a try. I use Endura Financial Federial Credit Union in Minneapolis MN. Their “E-Life Checking” product has 4.5% APY on balances up to 25,000.00, with requirements of 12 debit transactions per month, 1 direct deposit, and online statements. I qualified for December and earned the 4.5%! I didn’t have my entire balance transferred for the whole month so I received 26 dollars. I’m on track to receive 45+ after January! For most of my 12 transactions, I did several one dollar sales at a gas pump and also bought several individual items at grocery store self checkout lane. I’m quite happy so far, as this is triple the interest from my previous account. This credit union is not available nationwide however, it’s only for local members. I am really only going to use this account as a savings vehicle, I will retain my checking account at a larger more convenient bank for checking purposes. I split my payroll direct deposit to go 70% savings account (credit union e-life checking), 30% checking account. I found this credit union by google searching “rewards checking account [zip code]”.
For those who are skeptical about having to jump through the hoops, it’s really not that hard. Like I mentioned above, if you go to the gas pump or grocery store with self checkout during non peak hours, you should be able to get in 12 transactions with small dollar amounts in ONE TRIP, without even going out of your way (most people purchase gasoline and groceries…). The other limitation is the cieling of 25,000.00. Any balance above that earns .25% for the month. This could be a problem for people with more than that but I am not yet in that category :). Also, if you fail to meet the requirements, the entire balance earns .25%.
Boy these rates are really in the toilet…
All the rewards checking are only for 25k now, which can be a lot of work for more than 1 acct… Damn these low rates. Debase the dollar and can’t even earn 2% on savings.
@balor123: thanks for the update on that CostCo acct, that’s a decent rate.
ya these rates suck… I’m still at Dollar Savings Direct….
I was with them for a while but need to close that account now. Interest rate is ok but not great anymore. Doesn’t allow linking to more than one account. Transfer time was average.
My story is similar to Nate’s. I also switched to Ally, but wasn’t happy with that.
I just started reward checking and got my 5% rate for December.
Contrary to others, I wouldn’t describe the process as easy. First off I had to drive down to the bank across the city. I thought that would be it, but then I had to mail several things in snailmail that other banks let you do online. It took several phone calls to set things up too because of glitches in their system. All for a great rate that could disappear tomorrow.
As I went through several hoops I just tried to encourage myself by thinking it might discourage others like me who were trying to essentially “cheat” the bank to get good rates. Perhaps to ease my conscience and to support the bank I will attempt to use this card for some unnecessary purchases where I would only get 1% back with a credit card otherwise.
Just something interesting to keep in mind…
Earning 3% with no inflation IS NOT the same thing as earning 8% with 5% inflation. Why?
In the first scenario, you pay taxes on 3%. In the second scenario, you pay taxes on 8%.
Not only is wealth eroded by inflation (which is caused directly by the Federal Reserve and US Federal Gov) – but we are taxed for it too! Even if you don’t save any money – if inflation goes up 10% and your wages go up 10% (wages rise slower than inflation in recent times), you are now paying 10% more taxes even though your purchasing power stays the same. Sure – the government changes the taxes a little bit to account for inflation, but the true inflation numbers are hidden by using funny numbers. Look at shadowstats.com to see what I mean.
I’m also a SmartyPig fan. As previously mentioned, their interest rate is at 2.01% and has stayed consistent since I opened an account. They are extremely user friendly and always willing to speak to customers about any concerns. Not only that, they have taken customer concerns and actually made changes based on what customers have said. Very cool.
This is the kicker for me. Time is money and right now I still need to sever ties with the last few banks I went to for a purely temporary good rate or a smoking promotional offer. Some of them still have my money because I’ve been too busy to pull it out or because of minimum balance fees. I really just need a long-term, no fuss, very liquid investment.
I will look into the Costco one some more. Thanks.
Costco looks OK. But not enough of a rate increase for me to switch just yet.. I’m not an aggressive rate chaser though…
One important thing to note about reward checking accounts is that the vast majority of them are also free checking accounts with no monthly service charges even if you don’t meet the monthly requirements.
So if you’re looking for a free checking account and don’t care about the high yield, you may still want to consider reward checking. Plus, most also offer automatic ATM surcharge refunds. However, you typically have to meet the monthly requirements to qualify for those.
You are correct that inflation is not a good thing. What would be best for savers is low inflation with high interest rates. Unfortunately, the Fed matches interest rates to inflation to control it so we’ll likely never get that.
What stinks about current interest rates is they aren’t keeping up with inflation even without taxes (you can avoid them in a tax free account as well). Despite government claims, the cost of living is rising, not falling.
http://www.capital-flow-analysis.com/investment-essays/fiddling_cpi.html
You likely didn’t need a website to tell you that even though CPI was negative you still felt like you couldn’t buy as much with the same amount of money.
I like salemfivedirect. They have good checking (0.75%) and online savings that is 1.55%.
A selfish part of me wants Jonathan to stop advertising the rewards checking accounts because his blog is so popular a bunch of people end up signing up and the interest rate inevitably falls. LOL 😉
What of Incredible Bank? 2.02% APY on a checking account, Unlimited ATM rebates, Free Billpay, 3 external account links, ACH pulls and pushes initiated elsewhere are allowed., initial funding can be done by credit card up to $10,000, shows up as purchase great way to get reward points.
Pay off credit cards and get a guaranteed return of 10 percent or more. Pay off your mortgage or loan you owe the bank and get a guaranteed return of 6 percent. If you already fully own your home then you can buy a CD @ 2 percent a year.
Thanks for the very useful article. I have just started following the blog and intend to make it part of my daily read.
The Everbank and Ally offerings both look good. The Everbank rates have dropped slightly but the offering still looks to be slightly better when calculated over one year – it averages out at around 1.51% APY against the 1.49% offered by Ally. However, the Everbank promo rate applies to balances up to a maximum of $50,000. Additional funds attract interest at 1.25%.
On the other hand, the Ally offering has no cap, and applies to your entire balance. So the Ally offering will improve over the Everbank deal on larger sums of money over the longer term.
So when deciding on which savings account to choose for your cash holdings, consider – among other factors such as fees – whether a cap applies to the promotional rate, how much money you wish to hold in cash and for how long.
I think the Capital One/Costco bank is a much better deal than Everbank and Ally (~1.9% vs ~1.5%). Discover also has good rates but it has annoying limitations for those with large balances. For anyone with small balances, the small differences in rates isn’t worth your time. The trouble with banks offering 2%+ is that they rarely last long so the actual gain, even with a large balance, isn’t usually worth your time and the damage to your credit.
As for Incredible Bank, sounds like a good deal for the signup. $10k @ 2% (Schwab VISA) is a $200 bonus just for opening up the account.
Thanks balor123. I will certainly look at the Capital One/Costco offer. Much appreciated.
Cheers
Kevin
I just tried to apply for IncredibleBank, and I did not see any option to fund with credit card. Perhaps they pulled it? I seriously doubt their rate will stay this high for very long, but I’d open it if they took credit card funding.
I still use County Bank (ecountybank.com) and their Kasasa Cash checking account. They are located in Greenwood, NC but have no residency restrictions and you can sign up online (even via Kasasa.com). If you meet the minimum requirements each month you can get 4.75% APY. 10 debit card transactions, one direct deposit or ACH automatic payment, e-statements, and login to online banking once a month are the requirements (standard affair). I use this as my primary checking account (storing emergency funds, direct deposit paychecks, and meet the debit card transactions by paying Comcast in $1.xx chunks).
The rest I use my Schwab Visa card with 2% cash back. I made $40 last month off unexpected car expenses! (Yea, at least something exciting about your holidays present being a new a clutch for your car. Ha.)
My credit union also allowed me to fund with credit card. Lower limit though, 2500 max. I received 1% credit card rewards from it as cashback towards my mortgage :).
What a joke, Chase Premier Platinum Checking:
“You’ll receive some of the best that Chase has to offer, including special interest rates”
https://apply.chase.com/oao/ViewDisclosures.aspx?type=PER
Chase Premier Platinum Checking
$0 – $24,999 0.01%
$25,000 – $49,999 0.01%
$50,000+ 0.01%
Chase Premier Checking
$0 – $9,999 0.01%
$10,000 – $24,999 0.01%
$25,000+ 0.01%
Hi – I love to read others comments about the various banks, as I have become somewhat of a rate chaser, I guess. I would like to offer the following update: My KASASA – rewards checking – Acct at CountyBank SC rate has dropped – March 2010 – to 3.94….. but also very significant is that they also dropped the ceiling- it is now at 15k instead of 25k. They have always been VERY nice on the phone to explain to me (many times) what exactly will qualify to meet the requirements.