Why I would choose EmigrantDirect over others
Posted by Frugal on July 24th, 2006
Obviously, when opening a bank account, interest yield is very high on my list. The more important thing than having the absolutely highest yield is whether the bank is consistently competitive in offering their bank yield. You don’t want to open a bank account and several years later go through all the hassle of moving money around to another better bank. Consistency for me is more important than absolutely highest yield. Among the online bank of choices from NetBank, ING, EmigrantDirect, CapitalOne, HSBC, IndyMac, both NetBank and ING have fallen behind the curve of competitiveness of the market. While NetBank still have the attractiveness of close to full banking service for writing checks and free online payments, ING has no additional attractiveness other than being the first to market with more credibility. IndyMac bank requires a minimum deposit of $25000 to get their highest quoted APY. For most people to find higher bank yields then, one is left with the choices of EmigrantDirect, CapitalOne, and HSBC. (There are always many other ones, but I’m only limiting my discussion to the more well-known choices.)
To narrow down my choice, I would be using a criterion that not many people pay attention to: financial risk of the bank. Most people overlook the financial risk of the bank when opening a bank account because bank deposits have FDIC insurance for upto $100K. But as with everything else, extra yield almost always come with extra risk. Nothing is riskless, even for bank accounts in my opinion. The financial risk with bank accounts is whether the bank institution will go belly up and force you to go through FDIC to recover all of your money below $100K. It’s a hassle that you would probably never want to go through. The best way to avoid that risk is to have your money split in two different banks, so that the probability of simultaneous belly-up is close to nil. This way, you will be always left with some money to get through the period of recovering your money from FDIC. But if you don’t want to have the hassle of managing two bank accounts, and just want to consolidate into one bank, which one of the above three would you choose?
From my stock investing experiences, I can tell you that I would choose EmigrantDirect over others. In 2002 slowdown, when I was looking for short-selling candidates in the area of consumer credits, I found two companies that had higher deliquency and bad loans on their consumer credit cards among others: Metris (MXT for its symbol, Yahoo’s message board & thestreet.com joked that you definitely don’t want to put your money under this mattress or Metris), and Capital One (COF for its symbol). And guess what? Metris is now under HSBC through acquisition, and Capital One has started offering banking services more actively. Is this a coincidence? I think not. In fact, it may really make a lot of sense. The only reason that banks want to offer higher bank yields than others is to attract more cash money, and nothing else. Why would a bank give you more interest money besides that? It’s a capitalistic society, and they are not charities. Now, the next question that you should ask yourself is that why do they want your cash. And the answer could be that they REALLY need it (for their delinquent real estate or consumer credit card loans). If they are desperate, or close to edge of going belly-up, you definitely don’t want to get into that mess.
While my information from 2002 is quite out-dated but still may be true, I really don’t want to take such chance with my money. Here are my views for each, assuming that not too much has changed since 2002:
- Capital One: Based on the risk assessment, this could be the worst choice. Why would they start offering banking services more actively? If you understand banking, you would know that for every dollar of bank deposit, they are allowed to lend out about $10 of loan. It’s called fractional reserve banking. With sufficient bank deposits, they can make both of their book on consumer loan and banking to look sufficiently decent, with this 10X help.
- HSBC: Because Metris was acquired by HSBC in Dec. 2005, your risk is averaged with the new merged company. I assume that the averaged risk should definitely be lower than Metris standalone, and therefore, HSBC should have lower risk than Capital One.
- EmigrantDirect: I cannot find their stock symbol (if it exists). I believe that they are probably a relative new player. A new player is good in the sense that it will take quite a long time before they screw up themselves totally, with the help of the 10X fractional banking reserve. They could pretty much mess up, and still limping forward. It’s very hard to get a bank to fail in general, and even harder to get a new bank to fail financially. While there are other risks such as internet security, I have no such information to be compared for these three banks. But a newer bank like EmigrantDirect in respect to financial risk of the bank should be on a solid ground.
I still believe that the above three should be quite good choices because it’s simply very hard to get a bank to fail. However, I prefer not to take a higher risk for such a tiny difference in the interest yield. Yes, you would earn $8 more a year on every $10,000 of deposit at Capital One, and receive $25 if you pay $100 Costco executive membership. And yes, you would earn $5 more a year on every $10,000 of deposit at HSBC. But the race of chasing the absolutely highest yield is simply elusive, especially when EmigrantDirect will be raising its 5.00% APY to 5.15% very soon.
Here is a short review for EmigrantDirect in case you want to read it over before opening an account. And if you appreciate for my effrots in offering you good financial information on this site, please open the EmigrantDirect account through the sponsoring ads on my site. It will help me defray the website hosting costs and misc. for the year and the coming years. I would really appreciate it.
P.S. Please do check out the comment sections. I won’t be pretending to “know all”. In fact, I probably looked a little stupid. But in any case, no one can know all, and no one can be perfect, and that’s why in the comment sections, there could always be some people who are kind enough to share their knowledge.
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July 24th, 2006 at 5:54 am
Emigrant a new player? I could be mistaken, but I believe they are part of Emigrant Bank, one of the oldest banks in NYC.
I currently split my savings between HSBCDirect and EmigrantDirect.
July 24th, 2006 at 9:59 am
That’s a nice round up but the two items that kept me from opening an Emigrant account were:
1. Emigrant’s TOS says they can keep your money for up to 30 days if they want to after you request it.
2. Emigrant is soley based in New York and that city is a continous target for terrorist. Forget about FDIC insurance, what happens if there is a dirty bomb in NYC and your account is simply frozen for 6+ months?
Like 2 million said, keep half at HSBCDirect and half at Emigrant for better peace of mind.
July 24th, 2006 at 10:27 am
What about Citibank? You do have to open a checking account as well but they have said they are going to be a major player in the high yield savings market. I have recently opened an account and am very happy with the account. I also have a checking account that pays .5% interest.
July 24th, 2006 at 10:33 am
Wow. There seems to be a lot of FUD in here.
HSBC is an old British bank. They have a huge presence in Europe and Asia. In London back in 2000, I passed HSBC ATMs all the time. That’s why I went with them. International presence and a sturdy, reliable brand. Hopefully, if ever I need to get money and I’m out of the US, I can exploit that presence. HSBC has been banking for ages. Acquiring Metris gave them credit card presence in the US, just like the Household acquisition a few years back gave them a mortgage lending presence in the US. But HSBC was a fine bank before all of that, and still is as far as I am concerned.
EmigrantBank, of which Emigrant Direct is a subsidiary, has been around for a while too. They definitely aren’t “new”. But they are a regional bank in NY state, with heavy presence in NYC. Emigrant Direct gives them a nationwide footprint without buying/building branches.
Capital One started offering banking services (by purchasing Hibernia and another bank recently) because the cost of capital is lower for banks than credit card issuers like the old (pre-nak acquisition) Capital One or MBNA or Metris. Deposits are a cheap source of loan funding. Previously, they had to get funding from the capital markets (issuing stock or debt), which made their cost of capital higher and less stable. The reserve requirement thing you mention is irrelevant, in a discussion of banking strategy. Leave that for a discussion of inflation, central banking and economics with the Austrians and Keynesians (sp?).
K
July 24th, 2006 at 10:38 am
Thanks for all the feedbacks.
Just a quick response to Rich Slick, I don’t think banks in NY is a lot more risky than banks elsewhere, just because of terrorism. Nowadays, a bank will be stupid not to have any backups for their data at different geographical locations. Even my company which is a non-financial company has such scheme of data backup.
July 24th, 2006 at 10:49 am
Thanks for all the feedback, especially from Khyron.
On the internet, you can always meet people that are smarter and more knowledgeable than you, in practically anything you say.
I’m just glad that I catch your eyes to at least give this matter another perspective, besides the absolute interest rate.
Please keep it coming. I love learning from my readers.
And I guess Citibank looks like a good choice too.
July 24th, 2006 at 11:34 am
Well I also forgot to mention that HSBCDirect.com give you an ATM card to pull your money out. I’m not sure if Emigrant does the same or not. In the event of a disaster (like Hurricane Katrina), you’d be hard pressed to transfer money without power,internet access, or computer however if you could find an ATM in a nearby city, you could easily pull money out with your HSBC ATM Card.
And Frugal, I’m not saying you wouldn’t eventually get your money back, I’m saying it would probably take a long time to get to it.
August 1st, 2006 at 1:31 pm
Frugal, I’m really starting to like GMAC…Check writing, competitive interest rates, easy account process, clean website…plus, once I get to actually do a transfer, fast transfer…hopefully I can link ING and HSBC together…anything to avoid HSBC’s 3 day delay! Although GMAC is a little questionable in terms of financing…I believe GM recently received guarantees to sell GMAC though.
August 2nd, 2006 at 6:59 am
Thanks your input Freedumb. There is another good choice.
August 6th, 2006 at 5:10 pm
Don’t you know presidential bank? I have been using it for over 3 years. It gives highest interest rate at any time and all time. I guess the reason for its high yield and that you never heard of it is because it saves money on advertisement.
http://www.presidential.com
August 6th, 2006 at 8:47 pm
Andrew,
Thanks for your input. Yes, I don’t know about it. There are many things that I don’t know. And I’m always glad to learn new things & information from my readers.
December 7th, 2007 at 9:49 pm
Hey I’m trying to figure out what would be my best bet for depositing 11 million dollars that I’ve recently won from the Fla. Lottery…. I’m kind of confused, cause most banks only have FDIC for a little over a hundred thousand per. account…. Now I just simply want to deposit all the money into one bank if that is Ok or many banks…. Not wanting to invest all over the place anytime soon, just want things to be hassle free and draw interest on savings is all…. I plan on keeping out like
$ 500,000.00 cash on the side for just spending for fun and paying off all debts, buy decent boat etc…. Any suggestions on the banking method I should choose would be greatly appreciated…. I was thinking that I could just put all in one bank, but have like 11 different accounts thinking that each one will be FDIC insured over a hundred thousand or so each ? Not sure if I’m thinking right, but I do know that I need to get it all in the bank or banks soon…. I’m just a little nervous about all of it and do not want to have a lawyer help me or any local accountant advice to have to pay them to help etc.., cause it can’t be that difficult can it ? Just to keep it simply in the banks without spreading it around into all kinds of property everywhere etc… Which I will do later on in time…. Just want it in the bank or banks the smartest way….. Rather keep it in the States without having to go overseas to Swiss bank or something…. I know there are CD’s etc… that maybe I should look into as well…. I have never had this kind of money and was lucky if I could save up to $ 5000.00 in a whole year into savings, before this blessing…. Thanks guys for any suggestions that you can give me…. Didn’t want to give real email address at this time, due to security of any harrasment or internet contribution stuff or whatever right now K…