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The Beginning of the End . . . of Rate Hikes on Online Savings Accounts

Posted in October 2nd, 2006

Last week, I mentioned that E-Loan just came out with its version of the online savings account, offering 5.50% APY. At the end of the week, Emigrant Direct LOWERED its rate to 5.05%, matching HSBC Direct’s current rate. It’s the first time in recent memory that a major online savings bank lowered its rate. Based on the this–plus the fact that the Fed maintained its target for the federal funds rate at 5.25% for the last two open market committee meetings–may mean that we are near the top of the rates for online savings accounts for a while.

In fact, I’ll go out on a limb and say that we won’t see anything higher than E-Loan’s 5.50% at another major online bank for at least a couple of years. Fortunately, if I’m wrong, you can always switch accounts since doing so wouldn’t cost you money like it would if rates went up and you sold a bond.

I’m sure ING Direct is glad to hear this. Since they were the ones who started this niche and probably have the largest base of deposits, it was hard for them to keep up with newer entrants, since newers entrants didn’t have as many deposits on which to pay a higher rate.

I’m planning on switching over to E-Loan from ING Direct, since I think they’ll be leading the pack for a while (partly since they’re the newest) and I don’t think anyone will surpass them for a while. I hadn’t switched to Emigrant Direct or HSBC Direct in the past, mainly because I kept thinking that someone would always come along and outdo each other for the highest rates.

3 users commented in " The Beginning of the End . . . of Rate Hikes on Online Savings Accounts "

Carnival of Personal Finance » Carnival of Personal Finance #69 said,

in October 9th, 2006 at 1:57 am

[...] Getting to Enough mentions that Emigrant Direct’s lowering of the APY on their savings account is a sign of a start of a trend. [...]

Followup On Online Savings Accounts » Getting To Enough said,

in December 14th, 2006 at 10:05 am

[...] As a followup on my earlier posts on online savings accounts, it looks like my forecast on October 2 is still holding true–that online savings accounts from major banks had reached their intermediate-term peak when E-Loan came out their 5.5% account. Recently, E-Loan lowered their rate to 5.38%. [...]

Need Help Choosing Online Savings Account » Getting To Enough said,

in February 13th, 2008 at 10:20 am

[...] I had written a few weeks ago that I felt that interest rates on such accounts were topping out and the 5.5% at E-Loan was likely to be the top for a while. So, I was all set to move to E-Loan. The problem there is that you have to setup a whole new account for each “subaccount” you’d like and for each CD you want to purchase. You have to go through the whole procedure of setup and verification all over again each time. Also, there’s a $5,000 minimum so I can’t setup that car account yet since I don’t have that much saved up for it. [...]