|Rising rates don't lift all boats
Checking, money market accounts that lead the pack
By Greg Morcroft , CBS.MarketWatch.com
Last Update: 7:55 PM ET Jan. 12, 2004
NEW YORK (CBS.MW) - Remember the good, old days when banks gave you a toaster for opening an account?
These days, you can barely buy a toaster with the earnings on $5,000 invested for a year in the average checking or money-market fund.
Interest paid on deposit accounts remains at record lows since the Federal Reserve slashed rates to revive the economy. Yet they're bound to head higher should the current expansion take firm hold, making it worth seeking out the best rate payers.
Some financial institutions lure depositors with teaser rates, but most that are now paying top dollar consistently have for several years.
The average yield on an interest-bearing checking account is 0.25 percent today, vs. 1.03 percent in 1999, according to Bankrate.com. For bank money-market accounts, today's average is near 0.5 percent, well below the 2 percent average yield five years ago.
You can still find market-beating rates, but you'll have to forget your local bank and venture onto the Internet, where smaller, online banks are paying higher rates to attract customers.
The five top-yielding checking accounts today are online offerings, as are most of the top money market accounts, Bankrate says.
Presidential Online Bank now ranks No. 1 in Bankrate's national survey of interest-bearing checking accounts, offering 2.75 percent on deposits up to (not over) $25,000. The company paid just below 6 percent when it introduced its Internet account in 1995.
"This is a formula we've followed for about a decade, and we kind of invented this type of account," said Chief Executive Bruce Cleveland, whose bank has about a dozen branches in the Washington, D.C., area.
Less cost, better rate
Internet banks save money by not having to operate brick-and-mortar branches, and pass those savings on to customers in the form of higher yields.
"If you are taking a low rate of interest from a bank with a big branch system, and you never use those branches, why are you doing that?" says Doug Freeman, chief executive of NetBank, an Internet-only bank.
The average yield of the top five checking accounts tracked by BankRate.com is 1.76 percent. The top five bank money-market accounts, which are FDIC insured, average just above 2 percent, far higher than the industry-wide average of about 0.5 percent.
There is a slight downside to online rate offers.
According to BankRate, the average minimum to open an interest-bearing account at an Internet Bank is $708.33, compared to $494.73 at traditional banks. For interest accounts, BankRate found the average balance required to avoid checking account fees is $1,088.24 at Internet banks vs. $2,257.82 at traditional banks. The top five banks on its list are right around the $1,100 minimum deposit level.
Should you fall below the minimum monthly requirements at the top five banks, your service fee will average $7 per month.
Here are some details about the five highest-yielding checking accounts available. The information comes from the companies themselves, and information at BankRate.com.
Top money market rates
For money market accounts, the following offer the best rates, according to Bankrate:
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