Early Bird Gets the Worm

If you own a Discover Online Savings Account, you might have received the good news by now.  Discover Bank has sent out letters notifying certain select customers that they have been upgraded to a Premium Savings Account as of Jan. 31, 2010. 

The Premium Savings Account has the same features as the Online Savings Account, except it has a variable interest rate that will always be equal to or higher than the Online Savings Account.  As of Jan. 31, 2010, the current Premium Savings Account has an interest rate of 1.59% as compared to 1.35% for the Online Savings Account.  Most importantly, this offer is not available to the general public.

But there might still be hope.  If you do not have a Discover Online Savings Account, you can still open one today.  A 1.35% interest rate is comparable or slightly higher than some of the other online saving accounts out there, such as ING Direct, HSBC Direct, and Emigrant Direct (with the exception of American Express’s High Yield Savings which is currently offering a 1.50% APY).  And afterwards (or if you already have an account but have not received the current invitation), you can call customer service and request to be upgraded to a Premium Savings Account.  You may be pleasantly surprised, as Discover is known for its good customer service. 

Once again, the moral of the story is to start savings as soon as possible; but it’s better late than never.  Congrats to the lucky readers!

Not All Savings Accounts are Created Equal

As interest rates on savings accounts creep down towards Japanese lows, keeping your money in cash or letting it sit in a checking account may be tempting.  But as we argued in our first post, there are some savings options that can still give you at least a spark for your buck.  Along with savings accounts at credit unions, online savings accounts have one of the highest yields among your low risk options.

ING Direct’s Orange Savings and HSBC Direct’s Online Savings are probably two of the best known online savings accounts.  Offering a 1.40% and 1.55% interest rate (APY), however, they are easily beat by other options.

You can do better with Discover’s new Online Savings and American Express’ High-Yield Savings, both with a 2.00% interest rate (APY).  It seems that as people try to cut down their credit card spending, credit card companies are also turning to savings.  Discover requires a $500 minimum deposit to open the savings account, but imposes no minimum balance thereafter.  Amex has no minimum deposit or balance requirement, and both accounts allow up to six transactions per month (they are savings accounts after all).

Now there’s also SmartyPig, which got a special mention in Ron Lieber’s financial health day article on the NYTimes a couple of weeks ago.  It offers a daring 2.75% interest rate (APY) and requires only a $25 minimum deposit.  But before you rush to open it, consider whether some of its other features may become an inconvenience to you: SmartyPig is set up as a program to help people save for specific goals, and, as such, requires that you define a savings goal between $250 and $250,000 and set up monthly deposits to come in from an existing account according to your timeline and goal (SmartyPig calculates the value of the deposits for you).  If you need more flexibility in allocating your money towards savings, this may not be a good option for you, though you could set a very small goal and add more money at your pace.  A nice feature of this program, however, is that you can make your account “public” to friends and/or family through email, where you can choose to show them your goal and the percentage and amount saved towards it, and they can contribute to it, too.

Chances are, though, your friends and family are also trying to build savings of their own (and if not, you should definitely encourage them to do so).  Particularly in this economy, a rainy day fund or saving for a goal is always better than no fund or savings at all, but one that grows, albeit slowly, is even better.

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