ING Direct Increases Savings Rate To 4.5% APY, But There Are Still Better Options Available

ING Direct announced today it was increasing the savings account rate from 4.40% to 4.50%. While this is is a fairly good rate on cash it is far from the best option for stashing away some money. ING was leading the pack for a while by providing one of the highest savings rates but that trend has since passed. You can generally find comparable rates at many other banks, some rates are even a bit better.

Personally I have never been much of a fan of opening a separate savings account with a company like ING or Emigrant. I have enough accounts as it is; checking, savings, brokerage, vanguard, etc. I don’t need to make my life any harder by opening yet another account. That is why I wrote last month about another option to these savings accounts that can not only simplify your life but yield higher returns as well.

If you do any sort of investing I’m guessing you have either a brokerage account through one of the investment firms or you have an account with a company like Vanguard. In either case you have cash options available to you without the need to open a new account and worry about liquidity issues. For example if you primarily invest in Vanguard funds you can earn a 5.09% yield on cash. You put money into this fund just like you would when buying a mutual fund, so if you already have an account with them it is easy to move some money into it.

The second option is through any basic brokerage account. Since these money markets trade like a mutual fund you likely have the option in your account to invest in nearly any of the available money market funds available. For example you can get 4.89% with the JPMorgan Prime fund or over 5% with a Fidelity Money Market fund. This is how I handle my cash position in both my standard brokerage and IRA accounts. It allows it to earn pretty good interest while sitting idle, yet it is available to me almost immediately for making a new investment purchase. Most of the third-party savings accounts have at minimum a 2-3 business day time frame for money to move from that account to your linked bank account. By holding a money market within your existing investment account you can reduce that time to same day or next day settlement.

There are a few minor drawbacks though, but they are generally not a major concern for most people. One is that since these are similar to mutual funds in how they operate, they may have minimum investment limits unlike accounts like those at ING. Some are as low as $1,000 so like I said, that probably isn’t a huge concern. The second is that of FDIC. Since they are not issued by a bank they do not fall under the FDIC like a traditional savings product, but again that is not likely to be a major concern. Finally, these rates can change more frequently than those of a savings account. In a stagnant interest rate environment this will not really make much of a difference. In a rising rate environment this can be to your advantage as the yield can change daily allowing you to take advantage of the constantly increasing rate. Just the opposite though, in a decreasing rate environment you are not locked in at a set rate so your yield can begin to decline along with interest rates.

So if you have any sort of investment account already, before opening a new account be sure to take a moment to see what other options are available to you. Not only may you be able to simplify your account holdings but you may be able to receive a higher interest rate as well.

Related: Brokerage Money Market Funds – A Great Cash Option

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