My Personal Finance Journey

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ING Raised The Rate and VirtualBank Is Sneaky

Contributed by mm | March 2, 2005 12:48 AM PST

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%).

Click here to start saving with ING DIRECT!

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.

This Post Has Received 1 Comment. Share Your Opinions Too.


G Gopal Commented on March 3, 2005

Hello,

I have been looking at this alternate option. My credit union has been offering 5 year CD's at an interest rate of about 4.5%. The penalties for breaking the CD is 91 days of interest with principal never being penalized.

Over the long haul, this may work out quite nicely. Just some food for thought.


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