Consumers Face Weakened Banking Power

For seven months prior to the release of the August Credit Power Index, a system that tracks the banking power of consumers by measuring the difference between loan rates and deposit rates compiled by the money management information source MainStreet and the financial industry data expert RateWatch, interest rates on CD were showing slight but consistent improvement.

However, the latest Credit Power Index data reveals a reverse in the trend. Meaning when the index goes up, it means that the interest consumers are paying on loans is significantly higher than the interest rate they are receiving on deposits.

“The national Credit Power Index may have hit bottom last month,” says the general manager of RateWatch, Rachelle Zorn. Her statement suggests that an end to the great consumer environment at banks may be close at hand.

However, the notion of what makes a “great environment” is entirely relative, as interest rates on savings products such as CD’s have been dismal for quite some time.

The current sorry interest situation can be blamed upon the government. “The low Fed funds rate is the real driver here,” says Maria Cappellano, a portfolio manager at investment management firm Eaton Vance who focuses on short term instruments, according to Main Street.

“It’s really an anchor for short-term CDs and deposits.”

Despite the fact that any return investor can expect to receive upon such CD’s and deposits are drowning, many Americans are choosing to take the safer route of wealth preservation over the riskier and much more precarious path of growth investing. What this means is that much of people’s money will continue to be shuttled into these rather unappealing but secure instruments.

“Do I want to have my money in prime money market funds with exposure to the European debt crisis? Or should I put my money in an FDIC-insured CD at the local bank?” Cappellano proposes that investors are asking themselves, as per Main Street’s reporting. “The mindset of consumers is that they’re looking for this cash to be safe, and they’re mostly concerned with capital preservation than an income base.”

The only bright side is for people looking to borrow money because, should they qualify, they could get a great rate on a loan at the moment.

Despite the grim return money put into savings accounts and Certificates of Deposit these days, it is important that consumers don’t abandon setting some money aside in order to establish an emergency fund.

FBNO Direct High Interest Savings Account

We talked about FBNO Direct offering some of the highest interest savings accounts back in March. Today they are still offering some of the most competitive online savings rates at 1.10% APY. This is down 0.15% in 3 months or since our last post.

Signing up will take about 10 minutes using their online form and will require a form of identification, drivers license, employment information and a bank account to transfer funds from.

Their savings accounts come with no minimum balance; no fees and you can manage your account easily online. Current savings rates can be view from their site here.

All deposits up to $250,000 are insured by the FDIC.

Best Online Savings Account – November 2009

CD rates have constantly been dropping over the last several months but online savings accounts have somewhat stabilized. Some banks have even seen their savings rates increase from all time lows. Etrade, had a yield of 0.60% APY for the last few months but since has seen its interest rate increase to 0.95% APY, not a huge increase but still an improvement.

An online savings account functions the same way as a money market account but the main notable benefits of the online savings account are their flexibility, lucrative returns and FDIC protection. Most of these online savings accounts can be managed from anywhere nationwide, which makes them even more noticeable. Many people, who have large balances in their checking account, tend to opt for these high interest savings account or checking account in order to earn some extra interest on their idle cash.

Here are the Best 3 Online Savings Accounts For November 2009:

  • EverBank – Has a promotional 2.51% APY interest rate for all balances for the first 3 months. After the first 3 months the rate drops to 1.77% APY and will be paid on balances up to $50,000. There is a monthly fee of $8.95 if your account balance falls below the $5,000 mark. A minimum opening balance of $1,500 is required.
  • WTDirect – Online savings account yields 1.51% APY on balances above $10,000. WTDirect is out of Baltimore, Maryland and is a subsidiary of Wilmington Trust Bank, which has been in business for 100 year. The yield from WTDirect has been consistently higher when compared to competing banks.
  • ING Direct – One of the first online banks around and knows the business better than most other banks. Not only did they not need a brick and mortar business, but by saving money from not having one, they are able to pass the savings to their customers. Their online savings account yields 1.30% APY. ING Direct is known to have one of the best online interfaces around.

If you know of a bank that has better online savings account rates, then please let us know.

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