A Downward Trend In High Yield Savings Account Rates

Things have gotten a bit better since then, with some of the best savings account rates (such as Smartypig) topping 2%.  As the market recovery gained steam, so too did the anticipation that the Fed might begin raising rates again.  Well, that hasn’t happened, and just the other day the Federal Reserve announced they would be leaving rates low for a while, perhaps a long while.

Rate increases stalled, and the past few months I’ve noticed many banks lowering their interest rates.  I first noticed it with ING Direct (my online savings account of choice) and then Ally Bank (whose rates I track because I have an affiliate relationship with them).  I’m sure it’s been happening with other banks as well, but I don’t pay too much attention to most of the rest of them.

Is this the beginning of a trend?  Are low savings account rates here to stay?  Nobody knows for sure, but I would guess that savings account rates will remain low until the Federal Reserve makes a move.  I believe previous rises were due primarily to banks competing with each other for a flood of capital from the public equity and debt markets as well as an increase in the general U.S. savings rate.   Now that the easy business has been won, banks are lowering rates again, betting their accounts are sticky enough to get away with shaving a few tenths of a percent off their interest expense.

If the Fed announces a significant change overnight rates, I would expect high interest savings account rates to rise proportionally.  Until then, savers will have to make due with rates in the low-1% range.

Still The Best High Yield Savings Account?

ING was first to the watering hole, but intense competition the last few years has severely eroded ING’s competitive position in the online high yield savings account niche.  As of 11/01/2009, the ING Direct Orange Savings Account yields a respectable 1.30%;  however, competitors Ally Bank (1.55%) and HSBC Direct (1.35%) both currently offer higher yields and have for some time now.  Since a savings account is basically a commodity, it makes sense to always go with the highest rate, right?  Not necessarily.  Even though ING Direct isn’t the highest-yielding high yield savings account these days, I am still a customer and have no intention to switch to a competitor anytime soon.  In fact, I’ve even been eying their Electric Orange checking account as one of the best high interest checking accounts I’ve seen, at least for people who want to maintain a low balance.

ING Direct is still my high yield savings account of choice for a few reasons:

• Simple, Easy-To-Use Interface – As somebody who designs software for a living, clean, usable interfaces are very important to me.  ING Direct’s website couldn’t be easier to use.  By contrast, some of ING’s competitor’s have clunky, non-intuitive interfaces (HSBC comes to mind, although they may have improved things recently).  A high yield savings account online interface needs to do one thing and one thing only:  allow me to transfer funds to and from my checking account.  That’s it, and ING’s interface does this very well without the clutter so common on other banks’ websites..  Not too sure about the Orange color scheme, but that’s a debate for another day.
• Competitive Rates – It’s true that ING Direct rarely has the highest rates, but it’s also rarely the lowest.
• Good Customer Service/Reputation – I’ve never had a need to call ING’s customer support (why in the world would somebody need to, anyway?) but by all accounts it’s among the best in the biz.  That’s nice to know.
• Large, Financially-Stable Company - Yeah, I know high yield savings account deposits are FDIC insured so there’s no danger of losing money should the bank go under, but that’s not my primary concern here.  ING has the financial resources to continually upgrade their IT infrastructure in order to provide an even quicker and easier online banking experience in the future when new technology becomes available.  Many of ING’s competitors aren’t in such a favorable position and it’s conceivable their IT infrastructure would be one of the first areas to see cutbacks.
• It’s Just Not Worth The Trouble Of Switching – An extra 0.2% might earn me an extra $50 per year or so.  It’s just not worth the hassle of setting up a new account somewhere else, transferring the money, and then closing my ING account.  Yeah, I know it would only take 15 minutes, but $50 per year just isn’t worth 15 minutes of my time.  I don’t keep enough money in my emergency fund to make a difference.