|Passbook and statement savings accounts
Some things never change. Despite
15 rate hikes by the Federal Reserve, interest rates for passbook
and statement savings accounts have barely budged.
2006 survey of passbook and statement savings accounts shows
that the average passbook account interest rate rose 4 basis points
over the past six months to 0.59 percent; the average rate for statement
savings accounts moved up 1 basis point to 0.54 percent. A basis
point is one-hundredth of 1 percentage point.
As usual, thrifts -- savings and loan institutions
-- pay better rates than banks. On average, thrifts are paying an
additional 23 basis points on passbook and statement savings accounts.
The series of Fed rate hikes has pushed the fed funds
rate from 1 percent in June 2004 to its current rate of 4.75 percent.
The fed funds rate has an indirect, but major, impact on savings
rates, and some financial institutions, in an effort to boost consumer
deposits, have responded by offering high-yield savings accounts
But passbook and statement savings accounts haven't
benefited. These accounts are the most liquid of bank accounts.
They're also extremely convenient. Every bank carries them. Open
a checking account and get a savings account on the side to keep
excess money that's not needed to pay bills.
| The Federal Reserve has raised
the fed funds rate 15 times since June 2004, but people
who keep money in passbook and statements savings accounts
haven't profited. Interest rates for these accounts have
pretty much flat-lined the past few years.
|Many institutions take advantage
of consumer inertia -- these accounts are convenient and
customers often don't bother to move their money to high-yielding
savings and money market accounts.
Semiannually, Bankrate surveys savings rates offered by the 10
largest banks and thrifts in the top 10 metropolitan markets. Survey
after survey has shown that consumers pay a high price for the convenience
of these accounts. There's a much more profitable way to save, and
the inconvenience is minimal.
Visit Bankrate's high-yield savings money
market accounts database and you'll see more than a dozen institutions
offering 4.5 percent or better on their high-yield accounts. Many
of these accounts can be opened with anywhere from $1 to $1,000.
Sure, you have to open an account and, perhaps, link it to your
checking account, but the return is worth that little bit of inconvenience.
Put $2,000 in one of these accounts and you'll earn $90 interest
in one year versus $11.80 from a passbook account paying 0.59 percent
There's really no reason to give your bank an interest-free loan,
which is what you're doing when you keep money in a low-rate savings
account. In addition to high-yield savings and money market accounts,
there are a few high-yield
checking accounts that are a better alternative to giving away
Everbank's free checking account pays an introductory rate of 5.51
percent for the first three months and then drops to a minimum of
3.01 percent for balances under $10,000. You'll need $1,500 to open
the account, but after that there is no minimum balance to avoid
fees. Expect to see more online institutions, including ING Direct,
jump into the free, high-yield checking account arena in the near