The big news this week was the drop today in DollarSavingsDirect's savings rate from 4% APY to 3.5% APY. DollarSavings represented the last 4% APY savings rate and its drop, along with several other banks brought the average rate on savings accounts from the BestCashCow rate table down below 3% APY.
January 23, 2008 Update
The big news this week was the drop today in DollarSavingsDirect's savings rate from 4% APY to 3.5% APY. DollarSavings represented the last 4% APY savings rate and its drop, along with several other banks brought the average rate on savings accounts from the BestCashCow rate table down below 3% APY.
The other big drop was in 12 month (1 year) CD rates, with the average rate falling a whopping 40 basis points from 3.32% APY to 2.93% APY. This was impacted by the removal of First Command Bank from the rate charts after they informed us their accounts are not available to the general public.
As the chart shows, rates continue to drop with no end in site. Looking at the chart, it seems possible that they may bottom out in the 2% APY average range, meaning that rates could come down by another percentage point before the cuts are done. If you locked in a CD in October you should be very happy with that move.
The changes from the pervious week are:
Savings Accounts: 7 basis point drop from 3.06% to 2.99% APY
1 Year CD: A whopping 40 basis point drop from 3.32% to 2.93% APY
3 Year CD: 13 basis point drop from 3.26% to 3.13%APY
5 Year CD: 18 basis point drop from 3.82% to 3.64% APY
Note: 100 basis points represents 1%. Thus a drop by 100 basis points would be a drop from 4% to 3%.
Here are the rate of drops for the past five weeks since the Fed dropped rate, in percentage points.
DollarSavingsDirect's savings rate finally succumbed to gravity as the bank cut its rate from 4% APY to 3.5% APY. That rate is still significantly above the BestCashCow savings rate average of 2.99% APY.
As the graph below shows, DollarSavingsDirect bucked the decrease in overall rates since mid-October. Even though it has dropped its rate by half a percentage points, it's still well above the average of the top bank savings rates in the US and is now third on the BestCashCow rate tables.
Will it stay at the top of the rate tables? History suggests it might not. DollarSavingsDirect was started by Emigrant Bank, the parent of another online bank EmigrantDirect.com. As we discussed in an earlier article on the launch of DollarSavings, it was odd that the company started another online brand. The motive seemed to be a desire to not have to reprice the rates of all of the deposit money sitting in EmigrantDirect. The biggest difference between the two online divisions other than rate is the $1,000 minimum balance requirement for DollarSavingsDirect. Emigrant Direct as a $1 minimum balance.
Whether DollarSavingsDirect cuts its rate further depends on its need for deposits and the competitive environment. Several other banks that offer savings rates include Clear Sky Accounts at 3.75% APY, Bank of Internet at 3.51% APY, and CNB Bank Direct at 3.5% APY.
Time will tell if DollarSavings remains competitive but as we've seen in the past, when one bank decides to cut rates, other banks are ready to move up to the top.
Etrade is offering $25 to open a new online savings account and fund it with $1. The $1 minimum deposit required to receive the $25 is as low as they get.
Etrade is offering $25 to open a new online savings account and fund it with $1. The $1 minimum deposit required to receive the $25 is as low as they get. Etrade's savings account pays out a decent rate compared to the best savings rates on the BestCashCow rate table. The bank has also received high marks for the ease of its account opening process and its money movement tools. I have an Etrade account and have never had a problem.
As a company, Etrade is hurting. It has received 0 out of 5 starts for safety and soundness according to Bauer Financial as of their Dec 09 bank reviews. It's stock is trading at $1.20, down from nearly $25 two years ago. If you decide to deposit money in Etrade, be sure to stay below FDIC insurance limits.
