Yikes! Virtual Bank is at 1.75% Interest

I couldn’t believe my eyes when I logged into my Virtual Bank account today. My money is sitting there at 1.75% interest. What happened to the good ole days of 4%+ interest for online savings accounts?

It looks like ING Direct is still at 3% but I have to wonder for how long. Right now we don’t have that much money saved (just what you see to the right under savings account) but I still want to maximize what little we do earn.

A while ago I did move some of our money out of Virtual Bank and into ING. I guess I will go ahead and move a little bit more out of it, but not all of it. Sometimes I get uncomfortable having all of our eggs in one basket.

As a note, ING still has a great bonus going on where you can earn $25 if you open up a new savings account with at least $250. For more info, you can check out my page with ING Orange savings account referral links. Right now I am hosting some referrals for Phil.

Posted by Tricia on May 13, 2008 at 9:17 PM in Making Money | 8 Comments »
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Jim ~ mydebtblog.com responded:
Posted: May 14th, 2008 at 9:58 am
Federal Government kept cutting bank rates. How can banks pay you more when they earn less? I wouldn’t worry about having the money in a savings account, especially an EF. Maybe open an money market and see if you could get a better rate?
Earl responded:
Posted: May 14th, 2008 at 8:25 pm
I have an ING Direct Orange account (signed up becasue of $25 bonus) and now just signed up with E*Trade because they have a $25 sign up offer too with minimum $1 initial deposit. Their interest rate is actually higher than ING’s. Long time reader, first time poster here. Keep up the great work on your debt.
Dan responded:
Posted: May 15th, 2008 at 8:35 am
My Emigrant Direct is still at 2.75%. Hope it holds.
DebtFreeDave responded:
Posted: May 16th, 2008 at 5:12 pm
It’s nuts.. I just got back from Ireland I saw many advertisements for over 7%. We are getting hosed over here. I may convert some money to euros to see how it goes.
Mike responded:
Posted: May 17th, 2008 at 10:47 am
There are still plenty of offers in the 3.1-3.75% range at safe banks, but it is becoming more and more common to require larger deposits to get the higher rates.

Other alternatives to consider are I bonds and TIPs, if you can afford to lock away your money for a longer period. The government has been doing its best to make these completely unattractive investments, but the banks are slashing even more (c’mon guys, if you need liquidity, offer a decent rate and I’ll give you some cash!)….

I-bonds currently stand at 0% fixed, 4.84% variable. The variable portion is set by inflation (CPI). You have to hold for at least 12 months (buy at the very end of a month and you can cut this to 11 months + 1 day, as they give you credit as if you bought it at the beginning of the month). That 4.84% is set for the first 6 months, so if inflation averages 0.2% each month over the next six months, you’ll get over 3.3% net even including the 3 month interest penalty if you sell at your first chance in a year. The interest isn’t taxable by your state, either, which is a small benefit.

TIPS are currently offering better rates than I-bonds, but there are different tax rules there as well as a risk that the rate could change significantly if you sell before maturity….
pj responded:
Posted: May 17th, 2008 at 10:59 am
Tricia, maybe it is wise to move (part of) the emergency funds into the stock market. This might sound like a scary move, but dividend yields of index funds are yielding more than virtual bank. Also, companies will only cut dividends in rare cases. Moreover, by buying index funds, you lower costs and eliminate bankruptcy risk.

I use the index funds below myself. I never sell these funds, but I do spend the dividends. Like that, I don’t have to worry about bear markets. (If anything, bear markets increase dividend yields, so my ’savings accounts’ become more attractive.) Anyway, here they are:

Ticker,Fund,Current Dividend Yield,Expense ratio, Link
1. VTI, Vanguard Total Stock Market (USA), 2.01%, 0.07%, https://personal.vanguard.com/us/FundsSnapshot?FundId=0970&FundIntExt=INT
2. VGK, Vanguard Europe, 3.18%, 0.12%, https://personal.vanguard.com/us/funds/snapshot?FundId=0963&FundIntExt=INT
3. VPL, Vanguard Pacific, 2.41%, 0.12%, https://personal.vanguard.com/us/FundsSnapshot?FundId=0962&FundIntExt=INT
4. VWO, Vanguard Emerging Markets, 1.84%, 0.25%,https://personal.vanguard.com/us/FundsSnapshot?FundId=0964&FundIntExt=INT

If you have questions about index investing, Diehards.org is a great forum. Hope it helps.
Mike responded:
Posted: May 18th, 2008 at 7:40 pm
No offense, PJ, but I don’t think your advice to look into stocks is a wise idea at all. Trish has done a fantastic job working to get her finances in order, but her emergency funds are still relatively limited. You should only be moving to riskier investments when you can afford the risk of losing some of that investment. She needs cash or cash equivalents at this point. In the future with the way she’s going, your investments may be wise to look at, but not now.
Manders responded:
Posted: May 22nd, 2008 at 1:13 pm
Please feel free to correct me, I may be WAY OFF.

This Stimulas Check is to stimulate the economy by people spending it, but most people would rather save due to unstable economy lately. What better way to get people to not save this check by lowering the interest rates.