How to find a savings or money market account with a high interest rate / yield?

Question

I have my emergency fund in an ING Direct savings account. The saving account does not really give a good return and I was wondering what are my options?

I want to put the money in some sort of account where I can always access it without a penalty. Also, I want good interest or return rate. Any recommendations?

Answer 1

I'll try to give you some clues on how to find an answer to your question, rather than answering directly the question asked. Why not answer it directly? Well, I can, but it won't help you (or anyone else) much in two months when the rates change again.

Where the "high yield" savings accounts are:

Generally, you won't find such in brick-and-mortar banks. You can save some time and only look at online banks. Examples: ING Direct (CapitalOne), CapitalOne, Amex FSB, E*Trade, Ally, etc. There are plenty.

Go to their web sites, look for promotions, and compare. Sometimes you can find coupons/promotions which will yield more than the actual savings rate. For example, ING frequently have a $50 promotion for opening a new account.

You need to understand that rates change frequently, and the highest rate account today may become barely average in a week.

Finding comparison information:

There are plenty of sites that offer various levels of comparison information. One of the most comprehensive ones (IMHO) is Bankrate.com. Another place to look is MoneyRates.com. These sites provide various comparisons, and you can also find some promotions advertised there. There are more similar sites.

Also, search the Internet and you can find various blog posts with additional promotions – frequently banks give "referral bonuses" to provide incentive for clients to promote the banks.

Do some due diligence on the results that appear promising.

Does it at all matter?

Not much. You won't find any savings account that would keep the value (purchasing power) of your money over the long term. Keeping money in savings accounts is a sure way to lose value because the inflation rate is much higher than even high-yield savings accounts.

But, savings accounts are safe (insured by FDIC/NCUA up to the limit), and very convenient to keep short term savings – such as an emergency fund – that you cannot afford to lose to investments.

Sometimes you'll get slightly better rates by locking up your money in a Certificate of Deposit (CD), but not significantly higher when the CD is short-term.

Cautions

• The bonuses paid to get you to open an account are usually considered interest for tax purposes and will be reported to the IRS on 1099 sent out by the bank at the end of the year.
• Some of these accounts require direct deposits, or the use of a debit card in order to get the high rate or avoid service fees.
• Make sure that the exotic account offered by the bank is really insured, some offer a few accounts that aren't insured which can lead to confusion.