New online bank with 3.75% APY but there's a catch

asteriskEarlier today I found out about a new entrant to the high yield online savings market on CNN which is offering a savings account with an interest rate of 3.75%. Dollar Savings Direct boasts that this new savings account has America's highest rate* a full quarter of a percent above its nearest competitor. While the new entrant is FDIC insured and not new to the banking industry the new high yield interest rate doesn't come without a catch.

Getting the 3.75% rate isn't difficult but unless you already have some savings built up you can't open an account at Dollar Savings Direct which requires a minimum of $1,000 to open an account. If you have less than $1,000 in the account at any given time, the interest rates drops to 1% APY, which is dismal, especially for an online savings account. I'm not a huge fan of the drop in interest rate but if you have trouble dipping into your savings for non-essentials it may be enough to keep your savings in the bank.

I'm a huge fan of online savings accounts, especially those which pay me well for building up my savings. I currently use HSBC where I was able to open an account with only a dollar and I am currently earning 3.5% APY on the emergency fund we have built up over the past year. The real benefit of a high yield savings account with no minimum deposit is that it isn't a huge challenge to open and combined with direct deposit is an excellent way to start an emergency fund. If it wasn't for HSBC's no minimum savings account I'm positive that our emergency fund would have been squandered on electronics and Taco Bell.

Watching Your Plastic

    United States Attorney W. Walter Wilkins speaks to reporters outside the Clement F. Haynsworth Federal Building and U.S. Court House after Esther Reed pleaded guilty to identity theft in Greenville, S.C., Tuesday, August 19, 2008. Reed pleaded guilty Tuesday to stealing the identity of a missing South Carolina woman to attend an Ivy League school in what her lawyer called a bid to escape a painful past. (AP Photo/Patrick Collard)

    AP

    Defense attorneys Ann Marie Fitz, left, and Ryan Beasley, speak to reporters outside the Clement F. Haynsworth Federal Building and U.S. Court House after Esther Reed pleaded guilty to identity theft in Greenville, S.C., Tuesday, August 19, 2008. (AP Photo/Patrick Collard)

    AP

    This handout photo courtesy of the Boston Police Department shows suspect Clark Rockefeller. FBI agents on August 2, 2008 arrested a man accused of abducting his seven-year-old daughter, who was visiting from London, sparking a national manhunt and fevered speculation over the flamboyant fugitive's identity.The Federal Bureau of Investigation in Boston, where Clark Rockefeller allegedly abducted his daughter Reigh Storrow Boss from his ex-wife a week ago, said the fugitive was arrested in Baltimore, Maryland, and the girl freed. Rockefeller is now likely to face charges including kidnapping, assault, and possibly identity theft. However, police are no closer to resolving who the man they have in custody really is. He has reportedly used a number of aliases, including J.P. Clark Rockefeller, Clark Mill Rockefeller, as well as plain Michael Brown. Police at first thought he was about to flee to Bermuda or Peru on a yacht docked in Long Island, near New York. Some reports had him already in the Caribbean. AFP PHOTO/BOSTON POLICE DEPARTMENT/HANDOUT=RESTRICTED TO EDITORIAL USE =GETTY OUT= (Photo credit should read HO/AFP/Getty Images)

    AFP/Getty Images

    Homeland Security Secretary Michael Chertoff speaks during a news conference at U.S. Secret Service offices in San Jose, Calif., Tuesday, Aug. 5, 2008. The Department of Justice announced Tuesday that it had charged 11 people in connection with the hacking of nine major U.S. retailers and the theft and sale of more than 41 million credit and debit card numbers. It is believed to be the largest hacking and identity theft case ever prosecuted by the Department of Justice. The charges include conspiracy, computer intrusion, fraud and identity theft. The indictment returned Tuesday by a federal grand jury in Boston alleges that the people charged hacked into the wireless computer networks of retailers including TJX Cos., BJ's Wholesale Club, OfficeMax, Boston Market, Barnes & Noble, Sports Authority, Forever 21 and DSW. (AP Photo/Paul Sakuma)

    AP

    Homeland Security Secretary Michael Chertoff speaks during a news conference at U.S. Secret Service offices in San Jose, Calif., Tuesday, Aug. 5, 2008. The Department of Justice announced Tuesday that it had charged 11 people in connection with the hacking of nine major U.S. retailers and the theft and sale of more than 41 million credit and debit card numbers. It is believed to be the largest hacking and identity theft case ever prosecuted by the Department of Justice. The charges include conspiracy, computer intrusion, fraud and identity theft. The indictment returned Tuesday by a federal grand jury in Boston alleges that the people charged hacked into the wireless computer networks of retailers including TJX Cos., BJ's Wholesale Club, OfficeMax, Boston Market, Barnes & Noble, Sports Authority, Forever 21 and DSW. (AP Photo/Paul Sakuma)

    AP

    Homeland Security Secretary Michael Chertoff speaks during a news conference at U.S. Secret Service offices in San Jose, Calif., Tuesday, Aug. 5, 2008. The Department of Justice announced Tuesday that it had charged 11 people in connection with the hacking of nine major U.S. retailers and the theft and sale of more than 41 million credit and debit card numbers. It is believed to be the largest hacking and identity theft case ever prosecuted by the Department of Justice. The charges include conspiracy, computer intrusion, fraud and identity theft. The indictment returned Tuesday by a federal grand jury in Boston alleges that the people charged hacked into the wireless computer networks of retailers including TJX Cos., BJ's Wholesale Club, OfficeMax, Boston Market, Barnes & Noble, Sports Authority, Forever 21 and DSW. (AP Photo/Paul Sakuma)

    AP

    Secretary of Homeland Security Michael Chertoff leaves after a news conference in San Jose, California, August 5, 2008. U.S. authorities charged 11 people from five countries with stealing tens of millions of credit and debit card numbers from major retailers, including TJX Cos Inc, in one of the largest identity-theft schemes on record. REUTERS/Kimberly White (UNITED STATES)

    Reuters

    Secretary of Homeland Security Michael Chertoff attends a news conference in San Jose, California, August 5, 2008. U.S. authorities charged 11 people from five countries with stealing tens of millions of credit and debit card numbers from major retailers, including TJX Cos Inc, in one of the largest identity-theft schemes on record. REUTERS/Kimberly White (UNITED STATES)

    Reuters

    Secretary of Homeland Security Michael Chertoff speaks at a news conference in San Jose, California, August 5, 2008. U.S. authorities charged 11 people from five countries with stealing tens of millions of credit and debit card numbers from major retailers, including TJX Cos Inc , in one of the largest identity-theft schemes on record. REUTERS/Kimberly White (UNITED STATES)

    Reuters

    Secretary of Homeland Security Michael Chertoff speaks at a news conference in San Jose, California, August 5, 2008. U.S. authorities charged 11 people from five countries with stealing tens of millions of credit and debit card numbers from major retailers, including TJX Cos Inc , in one of the largest identity-theft schemes on record. REUTERS/Kimberly White (UNITED STATES)

    Reuters


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