Salem Five is a Massachusetts-based financial institution that has been a competitor in the online savings space for many years. Its online savings rate today stands at 1% and that is among the most competitive online savings rates. Because Salem Five is a Massachusetts bank, it is covered under the Massachusetts DIF policy that insures each depositor’s accounts, regardless of state of their residence, to a maximum of $1 million.

Over the last several years, two series of problems have become evident with Salem Five Direct’s online savings accounts. These problems have been highlighted to BestCashCow.com by our readers and we feel that they still need to be addressed by Salem Five.

First, promotional rates are higher than the rates in the post-promotion period and the rates in the post-promotion period are not transparent on the face of the site.

BestCashCow.com considers the practice of offering a rate dramatically above market to be a bait-and-switch tactic and warns depositors of this tactic.

Salem Five’s post-promotional rates have always been 5 to 10 basis points below its promotional rates which tend to be the only ones listed on its website. Salem Five should be more transparent about its promotional and post-promotion rates. Depositors simply should not be required in the post-promotion period to log in to their account weekly or monthly to find out how much below the advertised promotional rate they are earning.

While Salem Five now seems to have suspended, at least temporarily, the practice of issuing promotional rates, we have always found that their entire promotional savings rate thing played into the hands of whoever was writing the script for the Ally Bank television ads.

Second, transfers out of the Salem Five Direct Savings Account are not free and severely limited in ways not consistent with the US online savings account market

When using Salem Five Direct’s online banking interface, depositors are limited to $5,000 per transaction, $5,000 in aggregate per day; and $20,000 in aggregate per calendar month. Each outbound ACH transfer initiated through Salem Five has a $3 charge. These limits are very onerous - actually ridiculous. Using Salem Five’s website, it would take a year and cost $144 to move $240,000 out of Salem Five Direct. Under no circumstance do these limits and charges match the market practices for online savings accounts. Their very existence is material to depositors and perspective depositors, and they are not cardinally disclosed on Salem Five's website.

Allso not disclosed on Salem Five’s website is the very fact that the market creates a work-around for the limits and charges. By initiating your ACHs out of Salem Five through another online bank account, such as CIT, Synchrony or Ally, you can avoid Salem Five's transfer limits and fees. Your Salem Five Direct account can easily be set up and confirmed as an ACH transfer account using their routing number (211370558) and your account number.

The feedback that we have received from BestCashCow.com readers that Salem Five Direct has drawbacks that other online banks do not have is entirely correct. We think it is within BestCashCow’s role as the most comprehensive and informative U.S.-based website on personal savings issues to make consumers aware of the existence of Salem Five’s products. We also think Salem Five needs to take active steps to provide its customers with better rate disclose and match market practices regarding online ACH transfers.

Compare the best online savings rates here.

A common question we receive at BestCashCow is whether a holder of a savings or CD from a bank needs to pay taxes on the interest generated from those accounts. The short answer is: yes. Interest from FDIC insured accounts (savings accounts, CDs, interest checking, rewards checking) is taxable in the year in which it is received.

In most cases, your financial institution will send a 1099-INT form that indicates the amount of taxable interest you received over the course of the year. It is this number which you should report on your tax form. If you do not receive a 1099-INT and have an interest bearing account, you are still responsible for reporting your income. The IRS expects that you will contact your financial institution and find out the correct information so not receiving 1099-INT or any interest statements by mail is not an excuse to ignore the interest income.

If you have earned more than $1,500 in interest or more than $1,500 in dividends you will need to file a Schedule B, which prevents you from using a form 1040A or form 1040EZ. Note that dividend and interest income are each treated independently in triggering a Schedule B. If you earn $1,000 in interest and $1,000 in dividends, you do not need to file a Schedule B, but if either interest or dividend income is over $1,500 in a given year, you will need to file Schedule B.

Interest on Long-term or Non-maturing CDs

Interest earned on CDs, even if they did not mature in the tax year, is taxible in the year in which it is credited to your account for all CDs greater than 1-year. Even if the bank or credit union did not send you a check for the CD interest earned, but credited it to your principal balance, you still need to report that income on your taxes. The rule holds true even if you do not have the right pursuant to the terms of the CD to access the income. For this reason, some some people prefer to open CDs with their IRA funds, as the income on an IRA CD may accumulate in a tax deferred manner.

For specific questions, please ask a qualified tax accountant.

It is tough to earn next to nothing in a savings account and be excited about it. Provided you keep $100,000 in total assets with Merrill Lynch or $50,000 in cash with Citibank, you can now make up a lot of lost interest in the form of travel rewards by pairing your account with credit cards that extend certain benefits for preferred customers.

The Bank of America Travel Rewards card offers 1.50% cash back in the form of a direct credit on travel expenses for each dollar spent on the card. While this offer does not compare favorably to other travel and rewards cards on its face (see the best cards for spend here), the cash back amount is augmented by 75% for those holding balances over $100,000 at Bank of America, Merrill Lynch or Merrill Edge accounts (whom the bank designates as Platinum Honors for credit card purposes). The 75% augmentation takes the cash back percentage to 2.65%. While BestCashCow’s own rankings indicate that other travel and rewards credit cards offer value on spend in excess of 3%, the 2.65% return on spend is well in excess of what is offered through any cash back program. It is also highly desirable for those seeking maximum flexibility in how they redeem spending credits that they have earned through their credit cards as it does not require membership in an air miles or hotel point program, or trying to find those rewards through the program that maximize redemption value. You’ll also get 10,000 points – worth $100 – just for signing up for the card.

While qualifying for Bank of America’s Platinum Honors status does not make sense if you are holding $100,000 in cash at virtually no interest, it can make a lot of sense to hold and use this card if you qualify through holding equities, debt instruments or other securities in a Merrill or Merrill Edge account.

Full details on the Bank of America program and what is required to qualify for Platinum Honors status are available here.

Citibank offers the Prestige Card that delivers 3 points for travel (including gas), 2x for restaurants and entertainment and 1x for everything else. BestCashCow.com rates this card and the Citi ThankYou Premier card, its first year no fee sibling, as outstanding travel and rewards cards for recurring spend and for their 50,000 point sign up bonuses. In particular, BestCashCow.com sees at least 3 cents per point in value on Singapore Airlines Krisflyer, but points can also be worth 1.6 cents each when redeemed against charges from American Airlines.

For a $450 annual fee, the Prestige Card offers an array of benefits including a $250 annual air travel credit (which over two years more than covers the fee), entry to American Admirals club, global entry reimbursement, a fourth night free on consecutive hotel stays and four rounds of golf that the regular ThankYou Premier Card does not offer (read more on the difference between the two cards here). For those with CitiGold status (ordinarily $50,000 in account balances), the points earned through the Prestige Card are augmented by 15% so that travel earns 3.45 points, restaurants earn 2.30 points and everything else earns 1.15 points. Moreover, the annual fee is reduced to $350 and the signup bonus increased to 60,000 points (although it should be noted many non-Citibank account holders have reported getting these benefits simply by applying for the card in a branch). The reduced fee and the increase in points make an already outstanding travel and rewards card still better for Citigold members.

Full details on qualifying for CitiGold are available here.

The augmented credit card rewards that Bank of America and Citibank are offering to their cardholders who maintain qualifying accounts are interesting. However, before account holders at these banks rush into these cards, it makes sense to run the numbers, comparing these cards with the rewards that you might accumulate through other credit cards. If you are qualifying by holding cash, you should also factor in the loss of interest you would otherwise be earning. Leading online banks pay over 1% more in interest in the savings accounts (see the best rates here).

Compare travel and reward credit card sign up bonuses.