Time to Say Goodbye to Dollar Savings Direct

Dollar Savings DirectAfter being with the bank for only half a year, I think the time to move on has finally come.

When Dollar Savings Direct was first launched last summer, it was touted as a high yield savings account from Emigrant Bank, which also owns Emigrant Direct. You may wonder why one bank wants to have to online banking divisions. Weird, isn’t it? For some time, Emigrant Direct was also a leader in interest rate, but it quickly fell to the bottom after the bank became popular among savers and stayed in the basement ever since. I opened an account with Emigrant Direct in 2005 when ING Direct turned from a great bank to a mediocre one (rate wise).  My relationship with Emigrant Direct ended in 2007 after I found better places for my money at FNBO Direct and IGoBanking.

Actually, the launch of Dollar Savings Direct was seen as an attempt by Emigrant Bank to lure more depositors without having to pay existing Emigrant Direct customers the same rate, which was much higher than what Emigrant Direct offered back then. During the initial period, DSD indeed backed its claim as having “America’s Highest Rate” by offering its customers 4.00% APY in October 2008 when other major online banks already started their rate reduction campaigns. It was then I opened an account with them after months of “wait-and-see”. I though they could keep their pledge of providing the highest rate. Unfortunately, it wasn’t long before it became clear that DSD was on the same path as Emigrant Direct. If you take a look at my savings account interest rate history table, you will find that DSD has engaged the most aggressive campaign in reducing interest rate among online banks. In one and a half months since late January, they lowered their rates 6 times from 4.00% all the way to 2.25%, in the same neighborhood of Emigrant Direct. By making one rate adjustment every week on average, it seems that DSD couldn’t make up its mind on what’s the maximum, or minimum, rate it can offer its customers. When it finally decided 2.25% is the rate it’s comfortable to give us, it also marks the end of my stay with the bank. And at 2.25% APY, there’s just nothing worth it for me to stay.

After reviewing my options (I have bank accounts with DSD, Capital One, IGoBanking, ING Direct, HSBC Direct, and FNBO Direct), it looks like the best place for me to park my cash now is FNBO Direct. Relatively speaking, FNBO Direct is much more stable tan other banks in adjusting their rate. Since the new year, FNBO Direct has reduced its rate three times, half of the adjustments made by DSD, and at a much smaller magnitude, only from 2.80% to 2.40% APY. The current yield of 2.40% is in fact the best I can get from all the bank accounts I own (FNBO Direct was named the best savings account of 2008 by Kiplinger’s Personal Finance magazine. You may also want to check out my FNBO Direct review for more information). Yes, I have a bunch of bank accounts, but none stands out :(

So goodbye Dollar Savings Direct. I think it’s time for you to remove that “America’s Highest Rate” line from your website.

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6 Responses to “Time to Say Goodbye to Dollar Savings Direct”

  1. KP |  Mar 10, 2009 at 3:08 pm

    If you already moved your money to FNBO, it’s going to cost you this time since they dropped their rate to 2.15% – may be it’s time to appreciate dollars savings direct. I usually keep account at two or three banks with consistent rate (and divide money equally – risk distribution) and try not to move money around (since it costs interest worth certain days). The average rate over the year between this two or three banks comes out to be the same as if you keep moving your money to highest yield account – the difference is less hassle with better risk diversification. Of course one can argue – that is less than 100k (250k)equal to no risk but who would like the tension and hassle of calling every day to find out that your money is safe.

  2. Sun |  Mar 11, 2009 at 12:33 pm

    I just got that email as well. It’s a shame. With rates changing so far, I agree it may not be such a good idea to jump around.

  3. John |  Apr 18, 2009 at 9:36 pm

    yeah its very silly to take your ball and go home just because the bank is lowering its rates along with everyone else. i don’t blame them as they need to make their money. if they can’t make more than they’re giving you in interest than it doesn’t make sense for a bank to continue and pay that interest to people. But the truth is DollarSavingsDirect still has the highest yields. Your FNOBDirect bank now boasts a .15 percent lower rate than dollarsavingsdirect currently (1.90 vs 2.05% at DSD)