Apparently, two savings account giants, ING Direct and VirtualBank, both feel their latest offering of 2.60% APY in money market accounts is not competitive enough. Today, ING Direct raised the yield to 2.80% in a bid to attract more, or at least sustain its existing customer base. In a similar move, VirtualBank also raised its top-tier APY to 2.80% for balances under $10,000 -- balances over $10,000 are entitled to slightly less 2.75% APY.

As previously disclosed, I already moved majority of my emergency fund to higher-yielding EmigrantDirect account -- did ING Direct and VirtualBank saw so many yield-chasing customers like me that they have to respond?

Since the start of 2005, we have been witnessing rate increase in the saving account/money market account space every week. Just for this month, PFBlog has reported ING Direct's first raise to 2.60% on March 2, and EmigrantDirect's attack with 3.25% APY on March 13. The arena is more crowded with at least four banks offering 3.00% APY or more on saving account products: EmigrantDirect, Capital One, National Interbank INC and First Horizon.

The easy ACH-based electronic transfer across banks makes yield-chasers' life much easier. On the other hand, it is difficult, and costly, for established shops like ING Direct to raise rates. As reported by BusinessWeek recently, ING Direct has attracted $29 billion in deposits. Althought not all money are in savings account (some are in the form of CDs), a 0.20% APY increase on $10 billion amounts to $20 million a year and this is a lot of money. And to match EmigrantDirect's current rate, ING Direct needs to be mentally prepared to pay $45 million more interest at least. That partly explains why ING Direct cannot offer a rate that is as attractive as newcomers like EmigrantDirect.

Anyway, it is pretty evident that the rate war is far from end. If Fed, as expected, raises the Fed rate again later this week, will we consumers continue to see more sweet surprises like this moving forward?