Online Savings Accounts and Their Backers

I mentioned in my previous post What Happens When a Bank Goes Out of Business that I favor larger international or national banks over smaller no-name banks based on the theory that larger banks have larger budget and more sophisticated systems for security. I decided to take a look at the popular high yield online savings accounts and see who their backers are and their relative sizes.

The list of banks were selected from the Bank Deals blog. The deposit data were collected from the FDIC web site. The last column shows the combined total domestic deposit as of Sept. 30, 2006, the latest available from FDIC when I checked. If a bank is owned by a bank holding company which also owns other banks, deposits from all banks under the same holding company are added together. Please note only domestic deposits are counted. Deposits outside of the United States are not included. Citibank, HSBC and ING all have large presence outside of United States.

dba Bank Total Deposit ($ billion)
Citibank Citibank 226.3
Washington Mutual Washington Mutual 209.9
ING Direct ING Bank 62.5
Capital One Capital One 45.0
Zions Bank Zions First Nat’l Bank 31.8
E-LOAN Banco Popular 23.0
E*Trade Bank E*Trade Bank 21.2
AmTrust Ohio Savings Bank 17.2
Emigrant Direct Emigrant Bank 12.3
UFB Direct Sky Bank 11.6
GMAC Bank GMAC Bank 2.9
Amboy Direct Amboy Nat’l Bank 2.0
iGo Banking Flushing Savings Bank 1.7
OneUnited Bank OneUnited Bank 0.4
Presidential Bank Presidential Bank 0.4

As the data show, there is a huge difference in size between the larger, more established banks and the smaller banks. Citibank has 18 times more deposits in the U.S. than Emigrant Bank. Emigrant Bank in turn has 30 times more deposits than Presidential Bank. These banks, offering the same online savings account service, are on entirely different scales. It’s inconceivable that a smaller bank has the same level of investment or sophistication in security measures as a bank several hundred times larger.

If a smaller bank offers higher yield than a larger bank, should you go for the higher yield? You will have to decide for yourself. For me, I don’t use any of these banks because I keep my emergency fund in a Vanguard money market fund. See my previous post A Baby Step for Simplifying My Finances.

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  1. MoneyMan says

    Very interesting stats. I wasn’t aware that Flushing Savings Bank (from my hometown of NY) was backing an online bank.

    Personally, I wouldn’t worry too much about the size of the bank because savings deposits are FDIC insured and I have seen firsthand how well regulated savings banks are. Even if one went belly-up, as a savings account holder, you will be first in line to receive your cash back.

    That said, I’m not a fan of using tiny banks because they often lack some of the bells and whistles you can get with a bigger bank.

  2. Anonymous says

    Was about to ask about Paypal’s money market account but realized it isn’t Federally Insured. It is managed by Barclays.

  3. Scott says

    “It’s inconceivable that a smaller bank has the same level of investment or sophistication in security measures as a bank several hundred times larger.”

    To me that’s not inconceivable at all. A smaller bank is just as likely to be forward thinking as a large behemoth, and is just as likely to pay attention to their web development team (or to who they are looking to hire), in terms of how strong their security really needs to be.

    Sure, a larger bank would theoretically have more resources to throw at security, but they are also just as likely to have more layers between decision makers as well. Big doesn’t always mean better. It’s the bigger ones that are also in the most trouble right now.

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