Though rates have dropped dramatically, some online banks are offering as much as 3.5% for savings accounts. It pays to look aroundPeter Profesda admits he's a rate-chaser. The teacher of computer classes at a two-year college in New York spends a few hours a week checking bank Web sites and banking-related blogs to find the highest yield and other promotions. He's changed banks numerous times in the last few years, or has at least opened additional accounts, just to take advantage of promotions. Once a customer of ING Direct, a Wilmington (Del.) subsidiary of Netherlands-based ING Groep (ING), he switched to FNBO Direct last year after being lured by an offer of a 6.01% annual percentage yield (APY). Shortly after he opened his FNBO account, the bank cut its rate to 5.05%, and then to 4.30% and to 3.25%, where it stands currently. But Profesda was able to enjoy the promotional rate for his first three months at FNBO Direct.
More recently, though, online banks have had to lay low on promotions due to how dramatically interest rates have dropped over the past nine months, says Jim Bruene, editor of the Online Banking Report. "Lately I haven't seen too many promotions [for higher rates]," says Profesda, as he surfed the Web at ING Direct Cafe in midtown Manhattan on a warm June afternoon. (ING Direct Cafe offers Internet access and is a gathering place for consumers to buy coffee, tea, and snacks—the cafe does not have banking services.)
While online customers tend to chase higher yields, it's harder to get them to move their money when rates are around 3%, says Bruene. "There's some psychology at play," he says. "People have in their minds putting money away at 5%. Once they go into the [3% range], there's less motivation psychologically."
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