Above 5% Yield Going Away!

Since Fed started hiking short term interest rate in mid-2005, customers of some online banks and credit unions have been enjoying increasing yield in their savings and money market accounts while taking the benefit of easy access to liquid cash. Banks like EmigrantDirect, HSBCdirect were offering above 5% yield with no minimum balance requirement. In certain intervals, their rate even touched 6% APY.

Some people even made quite a good sum by borrowing money from credit cards offering 0.0% interest rates or some other minimal number and putting that in high yield CD accounts in banks like IndyMac.

But with recent rate cuts in short term interest rates, that honeymoon seems to be drawing an end. Most banks have pulled back their rate to below 5% APY. Three major players in online banking that impose no minimum balance requirement, EmigrantDirect, HSBCdirect and IngDirect are offering 4.75%, 4.5% and 4.3% respectively in their savings accounts. Some money market accounts are still offering high rate. For example, the current rate in PayPal money market is 5.2% APY. The Fed rate cut has also affected CD rates. IndyMac is currently offering 5.4% APY only on its 5-month and 6-month CDs and 5.1% APY on 1-year CD.

If the Fed cuts rate further in their next meeting on October 30th, the yield may go even lower pretty fast. If you have lot of cash lying in money maket or savings accounts, you may start shopping around and put your money in CDs of various time frames depending on your future requirement.