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Online Savings and CDs

Chris Farrell Oct 20, 2008

Question: I hear a lot about money market accounts, and Roth IRA’s as safe haven’s for investing. I’ve been putting money away in a ING savings account (was earning 4% at one time, now 2.75%). How come I have not been hearing of this as a viable option as a secure place to keep money? Is there an advantage of a money market account vs the ING account? Scott, Tallahassee, FL

Answer: Online bank savings accounts backed by the FDIC are a great place to save. You’re not only earning a higher rate than you do on the safest money market mutual funds, but the savings are insured by the FDIC. We’ve been listing this kind of savings account on our menu of safe options for savings we’ve discussed during the credit crunch and financial crisis.

Speaking of the financial crisis, it continues to reverberate throughout Europe. Most recently, the government of the Netherlands is putting more than $13 billion into ING Groep NV, the banking and insurance giant. The financial behemoth says its oldest legal predecessor is the Kooger Doodenbos from Koog, Noord Holland, founded in 1743. ING is now one of the world’s largest deposit-gathering financial institutions. It remains high on anyone’s list of strong financial institutions, but investors are so nervous that the bank and the Netherlands’ government decided to make a prudent injection of money before confidence started eroding. The ING parent company owns ING Direct, the online bank that operates in the U.S. and elsewhere. The key for you and others is that deposits in the U.S. branch of ING Direct are backed by the FDIC–assuming the sums saved come under the $250,000 insurance limits.

Investors are pouring more money into certificates of deposit, too. Still, considering the flight to safety and the current nervous environment, rates aren’t bad. The national average for a 1 year CD is 3.6%, according to bankrate.com. (The website is a good source of information on CDs, savings rates, mortgages, etc.) Still, you can do better than that. For instance, my online bank is offering a two-year CD at 4.15%. That’s well above the 1.7% yield on a two-year Treasury note. yet the risk of owning the CD is the same as owning a T-bill if the account is backstopped by the FDIC. .

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