An Inflection Point Of Savings Account Yield

Contributed by mm | October 7, 2006 5:06 PM PST

Earlier this month, Emigrant, the bank that holds most of my $40,000-strong cashpile, announced that it reduced its savings account yield from 5.15% to 5.05%. While the 0.1% decline is almost negligible and 5.05% APY is still very competitive, this event will probably be remembered as an inflection point of high-yield savings.

I opened my account with EmigrantDirect back in January 2005, when the NYC bank made an entry to the online savings account industry with a then ground-breaking 3.0% APY offering. Over the course of the last 22 months, Emigrant Direct has always been competitive by offering the very top yields. Its sudden reversal of course is disappointing, but considering the declining of long-term bond yields these days, and the apparent end of the Fed rate hiking cycle, it is probably only reasonable to expect more rate declines like this from other online savings account outlets.

From an avid saver's perspective, it is also right time to consider new market entrants like Eloan (who is offering super-competitive 5.50% APY for savings account -- with a minimal opening balance of $5,000), and to commit funds for a longer term (e.g. CDs).

To that end, I have moved all my $40,000-plus cash to Eloan. (I love the easy account opening process at Eloan -- everything is done online with no need to wait for snail mail confirmation.) Also, I'm carefully evaluate Eloan's strong CD offerings, which yields 5.60% for 6-month, 5.70% for 1-year, and 5.75% for 18-month to 5-year terms (all with a $10,000 minimal). Should I create a CD ladder for this 10% of my portfolio for some guaranteed juicy interest income?

This Post Has Received 25 Comments. Share Your Opinions Too.

Jeffrey Commented on October 7, 2006

I think you mean inflection point.

Jane Dough Commented on October 8, 2006

I must say I don't bank hop lightly. I become comfortable with a particular interface. Once I have memorized a particular username/password combination for a bank I don't particularly enjoy having to start all over again.

However, since you have made the leap to ELoan, it should be easy to take the next step to open some CDs. Higher yields are always good, unless you find yourself needing access to that $40,000. If this is your only liquid cash then locking it up in CDs might not be the best idea. If you have other cash reserves then by all means maximize your yield and lock that cash up in CDs!

Betty Commented on October 8, 2006

Yeah....I would lock up all that 40K in CDs and then you can't touch it as easily. No better way to earn then when you just send your cash off to pasture.

Betty

garrett Commented on October 8, 2006

What is a CD latter?

Billybob Commented on October 8, 2006

Thanks for the tip for eloan. I also have an account with Emigrant but did not aware they decrease the interest rate. Keep up the good work.

Lazy Man and Money Commented on October 8, 2006

I would do a CD ladder with some portion of that money. I know some people like to have a good portion of liquid cash around, I haven't really run into a situation where I need to get 40K immediately. Then again, I'm usually the one to take a bigger risk for a bigger reward.

Henry Commented on October 9, 2006

Amboydirect.com also offers an online savings account like Emigrant with no minimums and no fees with 5.25%! You should check it out.

NCN Commented on October 9, 2006

PF Blog,
I must admit, E-Loan is looking mighty inviting. I do hope they don't pull a quick bait-and-switch and adjust rates downward rapidly. I'd stay away from CD's for liquidity sake.

Your site is one of the originals, and one of the best,
NCN

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