I closed my ING and HSBC online savings accounts at the end of 2006. Why? Because I want to simplify my finances, which is one of my goals for 2007. I want to simplify my finances so that I get to focus on the bigger picture rather than being bogged down by the nitty gritty of seeing the trees but not the forest. More on the simplification scheme later. Another reason for closing the two accounts is that I already have a competitive substitute, Vanguard money market fund.
I opened the ING account a few years ago when ING offered much higher yield than what money market funds were paying at that time. ING was the pioneer in online savings accounts. They probably gave up a lot of revenue they could’ve received when they offered above-market rates to their customers. However it didn’t last long until the mainstream banks like Citibank, HSBC, and Washington Mutual, woke up and offered similar products. Another list of new players also entered the market, Emigrant, GMAC, MetLife, E-Loan, Capital One, Amboy, UFB Direct, iGo Banking, to name a few. ING decided not to compete on rates with these new players and their rates lagged what the new competitors offered. I guess they are trying to see how long these new players can stay in the game or they think most of their customers will stay with them due to familiarity and inertia.
When HSBC came out with its copycat online savings account service, I signed up because of slightly higher rates than ING’s. That was before the enlightment of simplifying finances. I now realize I will do perfectly fine if I just stick with what I had for many years — a Vanguard money market mutual fund. The yield difference between it and an online savings account is trivial. Vanguard’s Prime Money Market Fund currently yields 5.10%. HSBC pays 5.05%. ING pays 4.50%. A no-name iGo Banking offers 5.30% APY. On a $25,000 deposit, the difference between Vanguard Prime Money Market Fund and iGo Banking is $50 a year, before tax. I will not give my social security number to iGo Banking for a net after tax gain of $35 a year. Because I live in a high tax state, Vanguard’s Treasury Money Market or Tax Exempt Money Market funds actually pay a higher after tax yield than the Prime Money Market fund. That brings down the yield difference to an even smaller number (maybe even negative).
What do I get with a Vanguard money market fund?
- Unlimited free check writing = immediate access in case of emergency. Free checks too. I don’t have to wait 2-4 days for ACH. If I’m really in a pinch I can ask for a free wire transfer.
- Unlimited number of withdrawals. No Reg. D limit of 6 withdrawals per month.
- Same day exchange to any Vanguard mutual fund. I don’t have to move the money around when I invest.
But the best of it all is that I now have two fewer accounts to worry about. A baby step toward simplifying my finances. I’m telling you, there’s beauty and freedom in simplicity.
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