Wednesday, July 12, 2006

The Upside to Rising Rates...

I'm constantly amazed by complaints from people that local banks are still only paying 1% interest on their savings. The banks will only pay what the market demands and right now they know that you (their loyal, local customers) are not pulling out your money despite their paltry offerings.

For example

* Watertown Savings is now offering 1.25% on their standard savings account.
* Keybank offers an impressive 0.2% rate on their savings accounts.

The point is with little competition to force the banks to up their payouts the rates will not budge. Granted these banks do offer competitive rates if you are willing to lock up your money with them for the next 12-36 mths in a CD. That's not a good strategy in my opinion.

However, in the emerging world of online banking rates are very competitive.

Here Emigrant Direct is paying 5%.
HSBCDirect is paying 5.05%
and Citibank is paying 5%.

These banks are always competing for more press (ie, "The HIGHEST RATE in the nation") so when Citibank upped their rate to 5%, HSBC moved theirs to 5.05% a day later. This type of competition benefits consumers and you should take advantage of it.

Yes you will lose the pleasure of rushing to the bank by 4pm to catch the teller before she closes, but the rewards are worth it ;)

Given that the stocks have only returned about 3% over the past 8 yrs, 5% in an FDIC insured account looks pretty good.


1 comment:

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