A full month after VirtualBank raised APY to 2.60%, ING Direct finally caved in. Last Friday, this 800-pound gorilla in the online money market account finally raised the APY on its Orange Saving Account to 2.60%.
Actually, ING Direct's offer is better than VirtualBank now. The latter, while also claiming a 2.60% APY, actually uses a reverse tiered model. For balances between $1 to $9,999, the 2.60% APY applies. If your balance is in five or more figures, the current interest rate is 2.37% (and APY is 2.40%).
In other words, if you have a balance of $9,999, you can get interest at a running rate of $260 a year, but if you trust VirtualBank with one dollar more, sorry, VirtualBank will penalize you by giving $20 less interest every year. (All assuming you will always take out the monthly interest to other accounts.)
Actually, I learned this harsh reality the hardest way. Originally, I thought at least my first $10,000 will still be entitled to the higher interest rate. I was wrong. I left a little above $10,000 in my account last month, and only saw my month-end interest kicked in at the lower rate.
Anyway, only a few bucks were lost, but as more people find out this trickery, this reversed tier model will definitely backfire. For me, yesterday, I initiated a transfer to move $20,000 of my money (I have two accounts with VirtualBank) to EmigrantDirect, which rewards my savings at 3.00% APY. For the record, I have tested the latter for about a month now and I am going to trust it with more money.
Still, when banks compete, you win.