These are tough times for those of us exhausted by the see-saw formerly known as the stock market. To avoid the turbulence, for the last year or so I have been happily parking excess cash in FDIC insured CDs. Initially I used Schwab because of their ease of use to access dozens of banks around the country (just go to the Charles Schwab website and look for “CDs” under the trading menu), and supplemented with local banks when they had terrific offers. But in the last three months, the demand for money has dried up, with most banks offering tiny returns, often 1/2 or less of what they offered a few months ago.
Online banks offer a fairly easy solution that will keep your money insured with reasonable rates, yet fairly accessible and easy to manage. The concept is fairly simple. You open up an account at an online bank, the account is linked to your checking or savings account at your current bank, and you go online to transfer money between those accounts. The online banks have savings accounts that are currently paying around 2.5 – 2.75% – a rate many times higher than most traditional banks and money markets. Most also offer CDs that are paying around 3% for a one year term – also much higher than most banks – and also FDIC insured.
If you have a lot of money to park just stay below the $250,000 FDIC level at each bank, and open more accounts at different banks. Here are a few banks to consider:
- Emigrant Direct – www.emigrantdirect.com. A New York-based bank intially founded by Irish immigrants, they are currently paying 2.4% on their savings account, and 3% on a one year CD. The site is very basic and not fancy, but the service works well once you understand how to operate it.
- HSBC – www.hsbcdirect.com. The online division of a much larger international bank, they are currently paying 2.6% on their savings account, and 2.75% on a one year CD. A much nicer site, but I found it difficult to use when I signed up, with frequent crashes.
- Etrade – go to www.etrade.com and click on the banking section. The bank division of the online broker, they are paying 3.01% on their savings acccount. They offer CDs, but the rates are not competitive. A nice site, and I found it the easiest to use.
- Ing Direct – www.ingdirect.com. The “big orange” bank – they market heavily and you might run into a promo that pays a $25 or $50 bonus to open an account. They currently have one running on many Netflix envelopes. A nice site with many options, but I found it the most difficult of the above to sign up on. In fact, for two weeks I have been trying to work with them but am still having difficulties. However, it gets good reviews from other friends that have had accounts for a long time.
The beauty of using the online banks is that if you are willing to watch their rates you can really optimize your returns while keeping your money safe. If one is paying less, simply transfer to the highest paying account. While not a long-term investment strategy, it’s one way to weather the current financial storm.