E-Trade’s Online Savings Account Rate (down to 1.20%)
The downward spiral continued today for online savings account rates, this time coming from E-Trade. If you have been patiently waiting to get into one of these online savings accounts then you must feel like this rate slashing will never end. To be honest though, after a few decent weeks on wall street and one particular big earnings report from Wells Fargo I thought we were headed towards more lucrative savings rates. Apparently not.
I was just informed today that E-Trade’s once extremely popular online savings account just dropped it’s rate again (second time in 2 months) to a new low of 1.20% APY.
In the email I received from E-Trade they mentioned that their rates were at one point yielding 8 X the national average for savings accounts. They go on to mention that even after this most recent drop they are still sitting at 5 X the national average for savings account rates.
A positive note to potential FDIC investment purchasers
So is there anything positive we can say today about the kind of rates in which FDIC insured investments are yielding? Well, kind of. First, as a preface, if you can recall last spring through early fall we were witnessing rates from savings products that were close to unheard of. 5% 6 month CD’s, 4.5% online savings accounts and 4% money market accounts were all too common. However, most economists suggest that savings rates are mostly derived from the rate of inflation. And during those months inflation was at an extremely high rate when compared to where it is today (in fact some economists fear deflation is a real short-term threat).
So in defense of E-Trade, I’d like to point out the fact that if inflation sits at 3% and you lock in a savings rate of 4% APY, you are actually accumulating less than you would if inflation sat at zero and you invested in a savings rate of 1.20% APY.
Hopefully that makes some of you slightly more comfortable with a <2.0% interest rate, but I don’t blame you if it does not.
