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Five Minute Finances #4: Get A New High-Yield Savings Account 15comments
Five Minute Finances is a series of tips on how you can save significant money or reorganize your financial life in just five minutes. These tips appear Monday, Wednesday, and Friday on The Simple Dollar.
The average American has a savings account at their local bank, which offers on average an interest rate of 0.5%. That’s abysmal, and it’s basically impossible to get ahead with that kind of interest rate.
Fortunately, there’s a new crop of savings accounts now appearing with all of the features of a regular savings account (FDIC insured, easy deposits) with an interest rate that actually works for you – regular rates at 4.5% APY or above and some introductory offers as a $25 sign-up bonus or a 6% APY over an introductory period.
How much can I make? Let’s say you have $1,000 in your savings account. A typical savings account earns about 0.5% APY, so after a year you’d have $1,005 in the account. HSBC Direct, for example, has a 5.05% APY, meaning that after a year, you would have $1,050.50 in the account, which is $45.50 more than you would in your local neighborhood savings account. Every year after that, the money you can make in a high-yield savings account is even greater than your local simple savings account.
How do I start? I personally use ING Direct (4.5% APY as of this writing, amazing customer service, stellar interface). You can find a huge list of high interest savings accounts at bankrate.com.
When you’ve found a bank, just sign up and transfer some money in from your checking account. I’d recommend setting up an automatic withdrawal plan into that savings account – even just a little bit each week – so that you can steadily grow that account over time. I use such a scheme myself to keep my emergency fund well funded – and an emergency fund is a valuable thing to have so that surprises don’t derail your financial plans.
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There are no fees for transferring the money. All transfers are done electronically and are fee-free. When you sign up, you just give them your checking account number and your bank’s routing number (it’s on the bottom of your checks – they’ll show you where to find it). Then the withdrawal happens automatically. You can also set up a regular automatic withdrawal from your checking into your new savings account so you can quietly and effortlessly begin to save. It’s pretty simple.
Well, here’s what I mean: I signed up for an HSBC account a while back and later went to transfer $400 into it. I initiated this transfer at MY bank, to HSBC. I ended up with a $3 fee on the transfer. I’m muddling through HSBC’s site and my HSBC booklet and it seems to say as long as you initiate the transfer at HSBC, you won’t be charged for transfers in either direction (in to HSBC or out to your regular bank). Is this the case? So you’d want to set up the automatic withdrawal at HSBC to avoid transfer fees.
Sorry if that seems obvious, but clearly I didn’t know or I’d be $3 richer (plus interest!).
I personally have accounts at HSBC, ING, Capital one direct and emigrant direct.
HSBC may have the best interest rates but the interface is lousy IMO. It can also take a long time for them to transfer money out of the savings account.
My personal favorite is ING, they have a slightly lower interest rate but their web interface is quick and easy and they are johnny on the spot for transfers.
Yes, exactly. If you’re using a Direct bank like ING or HSBC, you should set up the transfers through them. They charge no fees for the transfers. Other banks, however, sometimes do charge fees for electronic transfers that you initiate through them – it’s just another way for them to ding you and collect a little more cash.
I would recommend ING Direct out of those for one simple reason – ease of use. HSBC would be my second choice followed by EvilDirect (not a fan, as you can tell). Only thing I wish is that the rate on ING were up to snuff, but IMHO the customer service and ease of use more than make up for it (yes i have accounts (or rather, have had) at all three places). Another that I’ve heard good things about but have no personal experience with is CapitalOne.
I generally agree, at least with regards to ING and HSBC. HSBC has better rates for the moment, but ING’s interface and customer service are significantly better.
I must say ING is great. Customer Service is always helpful, its almost as if they are in business to help you. I’ve had a savings account there for over a year and just recently moved my checking over to their electric orange account. i love ing and highly recommend them, even if 4.5% savings account isnt the best rate out there.
ING Direct has worked well for me. Remember that you earn interest on your interest too. When I compare to the rate I was getting from the other bank, I laugh (Dr. Evil’s laugh).
I open an HSBC Direct account, and although the interface can be improved, it was simple and straightforward. However, I’ve transfered to HSBC a few times now and I notice about a 5/6-day processing time. On the 3rd day (or 4th sometimes) the amount is deducted from my bank account, but it doesn’t show up in HSBC until 5th/6th day. There is a 2 day gap which I don’t understand. Also I haven’t withdrawn anything from them yet, so does anyone know who long of a process that is? Is it the same, because that might be a problem if using that as an emergency fund I guess. Any thoughts?
What’s the difference b/t a money Market & a savings acct? What are the advantages of one over the other?
Thanks.
I’ve had a HSBC account for a while and it has been good for me. You can setup automatic transfers and there are no transactions fees. They gave me an ATM card, but I don’t even use (in fact, I forgot my PIN code, lol.) But it has been wonderful for tucked away savings.
As Mukesh mentions above, it does take quite a while before the money is fully transferred from one account to another, I’m also unsure as to why.
I have to agree with all of you. Anyone looking for an online bank should defiantly choose ING. I’ve had a savings account with them for a year and a half. I just got the new electric orange checking account. I also have an account with HSBC because I liked the 6% promo. Just getting the HSBC account set up and going took 2 weeks. At ING initially it took maybe 4 days. At ING the interest I make on my CD’s goes into my savings account to make more interest. They hold deposits into your saving for 5 days they hold deposits into your checking for only 2 days, unless you use direct deposits, then funds are available immediately. But all money starts to make interest the first day, whether its on hold or not. At HSBC they hold transfers for 5 days and it does not make interest until it is in your account…..5 days later. I love ING, I know they rates are a bit lower then the competition, but their still better then most of your local banks.
Watch out for capitalone. I signed up for their savings account for my emergency fund, only to have my account access restricted. The reason for the restriction was that I had moved residences a several months prior to setting up the accounts. Apparently this looked like fraud to CapitalOne. I suppose this would not be a problem, except CapitalOne never sent me checks or an ATM card for the savings accounts. The net result: I can’t access my emergency fund. CapitalOne will be mailing me checks, but those checks will not arrive for several weeks, I will not be earning interest on these funds during this period, and it took me more than four hours to try to figure out what was going on (I had to wait on hold). I would warn anyone to seriously reconsider putting aside money in a CapitalOne savings account for an emergency fund, as they might find that when an emergency arises they cannot acces their own money!
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Is there a way to transfer money in and out of the HSBC account without incurring fees? Could you please explain the process?