Arbitrage 04: On Line Savings Accounts

Now that you have the cash, what do you do with it?

Put it in the safest investment vehicle you can find. You have a limited time to profit on the balance transfer. While the stock market is tempting because of the historical gains, it is not an appropriate investment for the arbitrage program. You have to at least preserve your principal for the next 6-12 months and the stock market is too volatile for that.

There may be some options among bonds, Treasury Bills, Money Market Funds, and such. There is still some risk, but I do not have the knowledge or experience with them to comment in detail.

One of the best solutions is to use online savings accounts.

Online banks offer competitive interest rates and expertise in web transactions because that is their business model. They don’t have to pay rent for branches or hire a bunch of tellers, managers, and guards to service your account

Some physical banks also offer online only savings accounts not available at branches. These accounts cost the banks less so they pay their customers higher interest.

In the past, I’ve used INGDirect.com (4.5%), EmigrantDirect.com (5.05%), and HSBCdirect.com (5.05%).

INGDirect.com pays the least interest, but it has the best website. It is easy to open and manage one or multiple accounts. If you want to open an account with them, send me your email address. If you open the account with $250 or more, ING will give you an extra $25 and give me $10.

I like ING because the account opening process was easy, and the website is intuitive. Once you have one account open (which can take several days for security purposes) you can easily open an additional account -- simply click a button.

It’s also easy to schedule recurring transfers or one time transfers a year in advance.

If you want to maximize your interest, though, HSBC is an excellent choice. It can take several weeks to open an account. And once you open an account, it can take a while to authorize your checking account for transfers in and out of the account. The security is impressive, but can also be a pain.

Once you have everything setup and can access the account, the interface is fine. The options for creating transfers between accounts work well, though they aren’t as intuitive as ING.

If you’ve used HSBC in the past and didn’t like it, you may want to take another look. They made a bunch of changes in the past year and the website is a lot better.

A unique HSBC feature is the ATM card. Unlike ING or Emigrant, they send you an ATM card so you can access your cash from any ATM. It may not be a good idea to use that at all for the arbitrage program, but it’s nice to know you can get cash in an emergency. Like if you need bail money.

Emigrant is a nice solution, too, but there’s not much to recommend it over ING or HSBC. I’ve used it in the past, and had no problems, but the interface on both ING and HSBC is nicer. It’s easier to open an account at Emigrant than it is at HSBC, and, since there’s no minimum balance, it doesn’t hurt to have an account. I just don’t find them all that compelling.

There are dozens of other high-interest savings accounts out there, but these are three of the biggest. Check them out on your own and see what you like. If you decide to open and ING account, email me.

Do your research and form your own opinion. After all, it’s your money.

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