What are you earning on your savings account? Hopefully you’re not leaving your savings languishing in a bank account that earns less than 1 percent. I’ve always recommended savers link their checking to a separate online savings account, because these accounts offer higher interest.  

Example: I have my checking account at Wachovia, and the interest rate offered on their Premium Savings Account is a laughable 0.15 percent. So I linked my checking to an Orange Savings account at INGDirect.com. It takes a couple clicks to transfer money back and forth. At one point, my Orange Account was yielding 5 percent.   

But as you can see by following this link to Bankrate.com, yields on online savings accounts are dropping like a stone, following the Federal Reserve’s four interest rate cuts over the last year. My INGDirect account is now yielding a paltry 3.65 percent. And while there are banks on the Bankrate list that offer higher yields, they aren’t rated very high for overall financial condition (click the star to the left of the bank name to see what I mean.) Granted, you’d get your money back from the FDIC ($100K or less) if the bank failed, but who needs the potential hassle?

So I’m moving our emergency fund into a Vanguard Prime Money Market account that yields 4.48 percent. Unlike money market deposit accounts, money market mutual funds and are not guaranteed by the Federal Deposit Insurance Corporation (FDIC). But they are extremely conservative and the chances are close to nil that you’ll ever lose your principal. (See this story in the Washington Post for more on money market funds and the slim potential for an investor loss.) 

• Stop the Insanity, Your Savings Are Safe
• A Primer on Rate Cuts
• Bank online, save trees (and money)
• Calculating APR on an Overdraft Fee
• Avoiding Overdraft Fees with Account Alerts

This entry was posted on Friday, January 25th, 2008 at 1:21 pm and is filed under deals and discounts, mutual funds, saving. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.