Interest Rates On Savings Accounts

Added March 24, 2008 by Ilyce R. Glink

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Summary: Interest rates on savings accounts will be low for a while. Is using an online bank a good idea to get a higher interest rate on his savings account?

Q: Thanks for all your excellent advice-it's kept me debt-free and earning interest rather than paying interest.

As you recommended in a column, I put my savings and money I am receiving as part of an inheritance into an online bank. At the time, the company was paying 5.05 percent. That was the best deal I could find 18 months ago.

But as you have seen, the interest rate on savings accounts is changing daily. I plan to use most of the money to buy a house this year -- if housing prices and interest rates are good enough.

As the online bank's interest rates were falling, I opened an online savings with another big bank where I have had a checking account for 15 years.

The account was paying 4 percent interest 6 weeks ago-and it still is, whereas the other online bank's rate continues to drop. Should I move the rest of my money to the new account or will the interest rate there fall as well.

Since the plan is to buy a house this year, I want the money accessible and not tied up in CDs.

A: Unfortunately, I think interest rates on all savings accounts are going to drop further, reflecting the Federal Reserve's recent moves. While it would be nice to lock in 4 percent or 5 percent for the near future, even a CD won't get you there.

You might earn an extra half percent on your money by continually shuffling it around. But you'll have to move the cash several more times before you finally write the house payment check.

One more thing: I don't know how much money you've got in these accounts, but don't put more than $100,000 in any FDIC insured account. That way you'll know your money is safe.

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