The following is a post by guest blogger Ken Tumin, who is the primary blogger at DepositAccounts.com.
When most people hear about American Express, Discover and Capital One, they probably think credit cards. However, they have something else in common. All three have major internet banks that offer competitive savings accounts and CD rates.
If you’re looking for an internet bank, the interest rate isn’t the only thing to consider. The bank’s online interface is also an important consideration. It should be easy to open accounts online and it should be easy to transfer money to and from accounts at other banks. Many internet banks fall short on their online interface. However, that’s not the case with these credit card companies. All three have invested heavily in their online banking, and consequently, they all have solid online interfaces that we have come to expect from internet banks.
Capital One Bank
Capital One is the only one of the three that has a large branch network in addition to an internet bank. If you want the highest rates, it’s best to open accounts at Capital One’s internet bank, what it calls Direct Banking. In addition to higher rates, all of the Direct Banking deposit products have no monthly fees.
Capital One’s savings account is called InterestPlus Online Savings. Compared to Capital One’s other liquid accounts, this savings account offers the highest interest rate. You can also receive an interest rate quarterly bonus by using your Capital One credit card at least once a month. Like a typical online savings account, ATM cards and checks are not available. To make deposits and withdrawals, you log into your account and initiate an electronic transfer to and from your linked checking account.
If you want to write checks, Capital One also offers online money market and checking accounts. The money market account offers limited check writing. Like any money market account, you’re limited to a maximum of six withdrawals by check and/or online transfer.
If you need to write more checks, Capital One’s Interest Online Checking Account allows unlimited check writing. This checking account also gives you free access to ATMs. They’ll reimburse you up to $10 per month for fees at other banks’ ATMs. Capital One is the only one of the three credit card companies that offers internet checking.
Finally, if you’re a Costco member, you can get higher rates by opening an account at Capital One’s Costco affiliate site. There are also a few other perks including a sign-up bonus. The Costco version of the InterestPlus Online Savings Account is a little different than the standard version.
Unlike Capital One, Discover Bank is primarily an internet bank with no significant branch network. The bank offers a savings account, money market account, CDs and IRA CDs. Currently, they don’t offer a checking account.
Discover Bank has been running its internet bank for several years. Their online banking interface used to be one of their weaknesses. However, in early 2010 they made a major upgrade of their online account center which makes it much easier to open accounts and to transfer money.
If you want the highest rate and don’t want to worry about monthly fees, Discover’s Online Savings Account is a good choice. The money market account has lower rates, and it also has monthly fees if your average daily balance falls below $2,500. ATM access and check writing are the main advantages of the money market account.
Like Capital One’s affiliate arrangement with Costco, Discover has a similar arrangement with AAA. Members of AAA can receive an extra 5 basis points on accounts. Unfortunately, AAA doesn’t make it easy for all members to see this deal. If you’re an AAA member, be sure to call Discover before opening an account.
American Express Bank
Several years ago American Express used to advertise a savings account as part of the Savings Accelerator Plan which was connected to the One Card. In 2009 American Express launched a new savings account that has essentially replaced the Savings Accelerator. The new online savings account no longer has any connection with the American Express credit cards. Unlike the other banks, they don’t offer checking or money market accounts, but they do offer CDs.
If you just want a simple online savings account with a competitive rate, American Express Bank is a good choice. It has just one top rate for all balances, and there is no monthly fee.
Since it’s only a savings account, there’s no check writing or ATM access. The primary way for making deposits and withdrawals is initiating electronic transfers to and from your linked checking account.
These three banks are not the only big credit card issuers that offer internet bank accounts. Both Citi and HSBC have long offered internet savings accounts. They used to be competitive, but in the last two years, their rates haven’t held up compared to the above three. There’s no guarantee that these three banks will keep their savings account rates competitive. Many internet banks that have been rate leaders in the past are now near the bottom. If you want the best rates, you shouldn’t grow attached to any one bank.