ING Direct’s interest rates drop

December 30th, 2008 · 5 Comments

I just noticed an ING Direct banner ad showing that the interest rate on the Orange Savings Account has been cut by 0.25% APY.  I logged into my own account and can indeed confirm that the rate has dropped as of 12/30/2008 from 2.75% APY to 2.50% APY.

My first thought about this is that I’m surprised the drop is only by 0.25% APY.  As a point of comparison, FNBO Direct’s rate drop last week was by 0.45% APY to 2.80% APY.  Does this smaller change mean that ING Direct needs to stay near the top savings account rates in order to attract assets, or at least not lose as many of them by customers going elsewhere? i.e. is it a bearish sign?  Or, is it that ING Direct has been able to weather the impact of falling rates elsewhere by better managing what they do with the money saver’s loan them?  i.e. is it a bullish sign?  Or is it neither and just a different execution strategy by ING?  For example, they might prefer smaller but more frequent drops over a single large drop.   Does it even matter to any USA resident who keeps their relationship with a given banking institution under the FDIC limits?  I’m certainly in the latter camp and I can’t see this change putting my relationship with ING Direct at risk given how their website makes it so easy to bank with them.

My second thought was to check the rates on other ING Direct products.  Two of the three rate tiers for Electric Orange checking account users have changed.  The lowest tier, with account balances up to $49,999.99 has no change with the rate constant at 0.50% APY.  But the $50,000 to $99,999.99 tier is now only 2.60% APY, down from (I believe) 2.80% APY.  Anything over that now earns only 2.80% APY instead of the previous 3.00% APY.  These changes don’t effect my family because we aim for a $0 balance in our ING checking account — our strategy is to keep money in a savings account to get the higher yield and rely on the instantaneous website transfers between accounts to put money into the checking on a just-in-time basis for paying a bill.

The CD rates have changed as well.  Here’s a list of the current yields:

  • 6-month is now 2.00% APY
  • 9-month is now 2.25% APY
  • 12-month, 18-month, 24-month, 30-month, 36-month, 48-month, and 60-month are all now 2.75% APY

I find it curious that everything from 12-month and on length terms has an equal rate.  A quick comparison check on bankrate.com (though there isn’t a single page that shows this) for differing length, multi-year terms shows that a number of other banks are still paying higher yields if you’ll commit to longer terms.  It seems that ING Direct is having a hard time finding higher profit, long-term, plays for any money they take in.  Or is it just that they’re not willing to make any longer-term plays at the moment?   I wonder if there’s anyway to find out for sure what the reason is?  I think the chance of it effecting us directly is small since our longest term commitment with them is 6 months, but anyone else using longer term products certainly should dig deeper.

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Tags: Savings

5 responses so far ↓

  1. 1 ING Direct lowered interest rates yesterday | Geographic Independence // 2009.01.21 at 4:55 pm

    […] interest rates on a number of bank products yesterday.  It hasn’t been all that long from ING’s last rate drop which I wrote about on December 30th, 2008, so I’m guessing this answers my previous question regarding how frequently ING changes its […]

  2. 2 worker13 // 2009.01.25 at 1:23 pm

    What’s odd and a little unsettling is that their 6 & 9 month CD rates are now actually lower than their Orange Savings Account rate (1.75% and 2% versus 2.4%).
    That renders a cd laddering strategy a bit useless. To me the message is clear: ING has no confidence in this current market to offer more short term and does not want to be obligated to paying higher rates short term on large amounts of cash being moved into short term CDs.

  3. 3 davmp // 2009.01.27 at 12:49 pm

    worker13: I agree with you about ING’s confidence but I disagree that it renders CD laddering useless, unless you restrict yourself to ING’s CDs. As an example, see the post I’m writing today regarding the fourth CD in our emergency fund CD ladder.

  4. 4 worker13 // 2009.01.27 at 6:50 pm

    Yes, I was referring to their CD maturity dates/interest rates. I also suspect that since their 6 & 9 month CDs are at a lower rate than their savings account, it is likely they are planning to drop the rates on their savings accounts further to correct this.

  5. 5 davmp // 2009.01.28 at 12:26 am

    worker13: I think that sounds about right. They’ve recently shown a habit of dropping rates more than once within a 30 day period. So combining that with the low CD rates, it gets hard to read it any other way than they will likely lower the OSA yield even more in the not too distant future.

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