Savings Account Interest Rate Updates

Still not much action in interest rate land, but here’s another update.

Reward Checking Accounts
These are checking accounts, usually through local credit unions, that pay a very high interest rate if you jump through some hoops each month. However, 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 3-5% APY usually on balances up to $25,000. Here’s a recent example at 3.50% APY on up to $50k, which requires 10 check card purchases each month, a direct deposit/auto-withdrawal, and online statements.

For more, see my review of rewards checking accounts and also this list of accounts by state. I’d stick with small local credit unions with limited membership eligibility if possible, as the rates tend to be more stable.

Online Savings Accounts Rate Updates

• Everbank is offering 2.51% APY for the first 3 months for new accounts. This rate is higher than any 3-month certificates of deposit currently available.
• ShoreBank Direct is offering 1.95% APY on its online savings account with $1 to open and no monthly fees.
• Ally Bank Online Savings recently raised their “no fine print” savings account rate to 1.64% APY. No minimums, no monthly fees.

Certificates of Deposit
As stated above, for 3-months or less go with Everbank. In general, CD rates have been very low, and given how fast rates can rise as compared to how much further they might fall, I don’t see the benefit in locking up for money for a slightly longer period of time. For example, a top 1-Year CD might get you 2% APY, while stretching out to 3 years might bump you up to 2.80% APY, according to CD “auction” site MoneyAisle.

If you are in a high tax bracket and have a 5-6 year horizon, you may also want to research the Vanguard Intermediate-Term Tax-Exempt mutual fund (VWITX). It currently has an average duration of 5.5 years and an SEC yield of 3.01% that is exempt from federal income taxes. In the 35% tax bracket, that is a tax-equivalent yield of ~4.61%. A top 5-year CD from MoneyAisle yields 3.39% APY. VWITX is not FDIC-insured and invests in high-grade municipal bonds, so weigh your options carefully.

Remember, the new $250,000 FDIC & NCUA insurance limits per titled accounts are currently extended through 2013.

Read more about Savings Account Interest Rate Updates…