Monday, July 17, 2006

HSBC offering savings account APY of 5.05%

HSBC Bank USA is offering an APY of 5.05% for online savings accounts, with no minimum deposit, no minimum balance, no minimum term, no fees, and it is FDIC insured. You can conveniently transfer money to and from your non-HSBC checking account and make free withdrawals at HSBC ATMs. Sounds like a great deal. Now, the big question is how to compare a 5.05% APY with rates that are quoted as "7-day yield". A 5.05% APY would correspond to an APR of 4.94% compounded monthly. How to compare that 4.94% APR to the PayPal 7-day yield of 4.95% is not clear to me, yet. It's also not clear how frequently the HSBC APY might change. I don't know how frequently the PayPal yield can change either. What I do know is that in an environment of a rising Fed funds target interest rate or at least an environment where short-term rates are rising to catch up with prior Fed hikes, money market mutual funds (such as PayPal's) will continue to rise for at least a bit longer. The trajectories of special bank rates such as the offer from HSBC are unclear. The PayPal money market is a mutual fund and not FDIC insured.

I am seeing high yields for special CD offers, but they have required terms (e.g., 7% for 7 months), and that doesn't fit my current situation where my cash is in a state of flux. Also, a lot of these specials are intriductory gimmicks and may end up being a waste of your time in the long run.

-- Jack Krupansky


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