Capital One Online Savings rate slashed to 2.64% APY

Due to concerns about going heavily after risky credit card borrowers (including me!), Capital One used to be on relatively shaky ground. But now that the financial crisis has humbled even the mightiest of banks, even Barron's thinks that Capital One is looking not so bad ("Of the pure-play card issuers, Capital One is best positioned to ride out the storm; its acquisition of Chevy Chase Bank gives it a fresh source of funding.") Like many of the other risky banks even before the crisis in September, Capital One was offering very attractive FDIC-insured online savings rates to attract deposits, a way of "bailing" themselves out reasonably cheaply. In November I opened an account and the rate was 3.55% APY. But, now Capital One is doing so well that they slashed their online savings rate to 2.64% APY from 3.00% APY where in was in late December. That is for a $10,000 minimum. They are offering only 1.50% APY for balances under $10,000. Silly me, wishing my bank was on shakier ground!

The good news is that GMAC Bank is still offering 3.25% APY with no minimum. Despite the government bailout of Detroit and GMAC itself becoming a bank holding company, GM and GMAC are still on somewhat shaky ground. But with FDIC insurance, you have got to love it!

I had put some of my estimated tax money for next week (quarterly due date of 1/15) in my GMAC Bank account, but since it is earning the higher rate, I will leave it there and take the money out of my Capital One Online Savings account since it is earning a much lower rate. A larger pile of my cash is sitting in a Sovereign Bank money market account that is still earning the same rate as GMAC Bank.

All of these FDIC-insured bank accounts are paying a higher rate than the best money market mutual fund rate that I can get from Fidelity, even though any new balances at Fidelity would not have any government protection. Actually, fresh money market funds do have some "protection" in the sense that the Federal Reserve now has some new programs in place to facilitate liquidity of money market funds.

-- Jack Krupansky