Sunday, January 27, 2008

Chasing the Rate/The Subprime Mess

I started my tiny little nest egg at one of Etrade's online savings accounts last year. Etrade was offering a 5.15% APY at the time. Ok. I was thrilled, because this was a better return than the long-term cd that I held at another bank, and the Etrade account was completely liquid. Then I started reading My Money Blog, my favorite blog ever, and discovered FNBO Direct, which had a 6% APY. I chased the rate and moved my money there. That was nice, and my nest egg has grown very nicely, thanks to strict, relentless saving and the high APY, bee-aitch. When FNBO dropped their rate, I found Everbank, which was offering a 6.01% promotional 3-month rate. I jumped again.

Now I've come to the end of that promotion and I've been scouting around for another online bank to park my little bag-o-cash. I temporarily have it at Countrywide, which is offering a 5% APY on their SavingsLink account, but I keep thinking I can do better.

I know these great rates are not going to be around for long, thanks to the Fed dropping like a stone, in response to the housing crisis/bailout. Let me send a big shout-out to the homeowners who foolishly got into mortgages they couldn't afford, since I am now paying for their bailout. And a big hug to the mortgage brokers who sold them the ARMs; I really hate you.

Thanks to a comment posted at My Money Blog, I found One United Bank. They are offering 5.30% APY, as well a $50 signup bonus if you do direct deposit or set up recurring payments on their debit card (which is so easy to do...just pay two consecutive utility bills). This currently seems to be the best thing out there right now. I think 6% APYs are going to be a thing of the past until the country recovers from the housing fiasco.

As you might be able to tell from my tone, I'm a little angry about the subprime mess. Sure, I feel bad for these people and I don't want them to lose their homes. But I also wanted to buy a house recently, and you know what, I held off because I assessed my situation and to do so would have been irresponsible. It feels like the responsible folks who are living within their means are being penalized and those living in as much debt as they can get themselves in are getting breaks that they didn't earn. Read this MMB post on one of the subprime "victims." Do you really feel sorry for this couple? Do you own a $50,000 Lincoln Navigator luxury SUV? Do you have a koi pond? I don't. You know why? I can't afford those things. And I make more than they do, have zero cc debt and no kids. But I work hard and live within my means. Buying a house is the single largest financial transaction most people ever perform. Why wouldn't you put an enormous amount of thought and planning into it? Why wouldn't you take the time to understand the terms of your mortgage, or if you don't have the capacity (as I fear I don't), hire someone who will? Am I being too harsh? I don't think so.

But I understand that because of the subprime disaster, this is the worst housing market since the Great Depression and I know what that will mean to the general economy. And I'm not completely heartless and I understand the need for a compassionate plan to help these people. It just hurts that whenever a crisis like this happens, it's the responsible, middle-income taxpayer that pays the price.

Enough whining; back to banking. In the midst of all the stock market turbulence, a guaranteed 5-6% return on your nest egg is a nice, safe quiet harbor for your money. Here are my personal requirements for a high-interest online savings account:


  1. must be FDIC insured. You can look this up here. Of course, you should never keep more than $100,000 in any single account.
  2. must be fee-free.
  3. must have either no or reasonable minimum balance requirements.
  4. must allow free online transfers to other external accounts.
  5. funds must be completely accessible at all times.
Don't forget that you will have to pay tax on these nice returns, so be sure and set aside some money for that, come tax-time. But that should be your biggest problem.

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