ING Direct, Ally, SmartyPig: Which Online Bank to Use?

I’m still dragging my heels on moving a good portion of our savings to an online bank, where I can get better interest rates while not tying it up in a CD. So far, I’ve been all talk and no action. But I’m ready to change that in the next few days.

Our brick-and-mortar bank is a local community bank with a few branches. The savings interest rate we’re getting is only 0.85%, and a 12-month CD is 1.19%, which isn’t too shabby.

Right now, Ally has the edge, interest-wise: A savings account is getting 1.29% APR, versus ING Direct’s 1.10%. But rates are variable. ING Direct does offer a $25 bonus to new account holders, and a $10 referral bonus if you use a link through another account holder.

But there’s another choice — SmartyPig has an incredible 2.01% interest rate and works a bit differently than ING Direct and Ally, in that it’s more of a “social” savings account. This means other people can actually contribute money to your account. In another strange twist in the world of banking, SmartPig has a ‘reverse tier’ system, where accounts with MORE than $50,000 are severely penalized with a reduced interest rage of 0.50%.

Ally was formerly known as GMAC Bank, owned by GM, which received federal bailout money and is now, the federal government owns a majority stake in the company. This makes me wary, even though GM just posted its first quarterly profit since 2008. While I know my funds would be FDIC-insured, I don’t want to see a lowered interest rate anytime soon. (Oh, to be back in the days when I used to have 5.5% 6-month CDs. But I digress.)

With all these choices, I find myself just going in circles, rather than just picking one and sticking with it. Oy.

As for the amount to put into the higher-interest accounts, I have to keep in mind that I’m thinking about investing in the stock market for the first time. It would be a small investment (likely $500). Of course, I need to do some research. I’d like a stock that pays dividends and has a healthy balance sheet. My dad is pretty well-versed in how to compare the financials, so I’ll have to talk to him about it. This would be the next step in trying to get us on the road to a healthy retirement fund.

Readers: Do you use online-only banks? Of Ally, ING Direct and SmartyPig, which would you recommend?

18 comments to ING Direct, Ally, SmartyPig: Which Online Bank to Use?

  • Jessica Sethman

    I started using SmartyPig last year and the interest rate was just over 3%. Savings accounts have never shown a really rate of interest. Maybe 5% in days gone by (someone correct me if I’m too low there).

  • ja

    PLEASE name a few of these brick and mortar places offering these rates:
    “There are many that pay 3.5% or 4%, some even more if you can find them and are local to that local bank or credit union. Yes, you’ll have to fulfill the monthly requirements of 10-15 check card uses/month, a direct deposit or bill pay, and online banking, but that’s not that difficult.”

    I cannot find any…in fact, there are less and less checking accounts around here that offer more than 1/2 of 1%!!!!

    • Nicole

      Ja: Unfortunately, since this post was written a year ago, interest rates have dropped to almost zero in some cases. Hopefully, we’ll see a rebound sometime soon.

  • Given the choice amongst those three, I would prefer ING. The interest rates are high and requires no fees to open an account. Also no minimum balances is required. Your savings account will be automatically linked to your current checking account and its fast and easy.

  • I’m planning to do the same and I’m leaning toward ING. I know a number of people with ING accounts who speak very highly of the service and the $25 bonus is a nice plus.

  • I signed up with ING sooo long ago. It was hot back then and now I’m just too lazy to move our “house fund” … Other than my mom, I’ve never been able to get in on that referral rate, nobody trusts online banking in my circle – so it doesn’t help us really.

  • cm

    None of the above. First, a 12-month CD at 1.19% IS shabby–insultingly so. Next, SmartyPig’s rate is going up slightly to 2.15%, but even that is nothing close to “incredible”. 2% interest still stinks compared to historical average inflation (that said, I have used SmartyPig for months now, and I have no problem with their service, and I realize they set their rates as they do because they are a business and I get that).

    The only time you get to use “incredible” in relation to interest rates were the 1980s in which CDs were paying up to 17% (that is not a typo). But even in post-tax/post-inflation terms, in 1979 CDs were returning 9.41% after tax and inflation! That’s “incredible”.

    But back to the present…

    So instead, go with a high-interest checking account until you max out their maximum deposit. It’s not even a contest. There are many that pay 3.5% or 4%, some even more if you can find them and are local to that local bank or credit union. Yes, you’ll have to fulfill the monthly requirements of 10-15 check card uses/month, a direct deposit or bill pay, and online banking, but that’s not that difficult.

    • Nicole

      I suppose “incredible” wasn’t the right word to use — especially compared to the interest rates on CDs a few years ago. Consider me sufficiently chastened.
      But it depends on your perspective.

      The 80s are definitely an example of a time of extremes — not only were the CDs paying 17%, but the mortgage rates were in the teens, too. So if you were a homeowner with a mortgage, that 17% wasn’t doing much for you.

      I’m not looking for an online checking account, since I prefer that to be based at a brick-and-mortar institution, but I appreciate the suggestion.

      • cm

        “I’m not looking for an online checking account, since I prefer that to be based at a brick-and-mortar institution, but I appreciate the suggestion.”

        But the online checking account I use IS at a brick and mortar institution. It’s at a real physical bank. I have a check card (a VISA debit card), I get online statements, I can do transfers, write checks, etc. When I have had a (minor) problem I can either do online chat or by phone. Why would you pay 3% of your money to refuse this?

  • Petunia

    I use Ally now, have used ING in the past. Personally, I don’t think it matters too much which you choose.

    But what really grabbed my interest is your intent to begin dabbling in individual stocks. I suggest you strongly consider buying shares of an index fund or broad (not sector) etf instead. The reasons are numerous, but what it boils down to is that unless you are very adept at evaluating a company’s financial statments (and perhaps you are, I don’t know), you can lose an awful lot of money by choosing individual stocks. Buying an index guarantees you market returns less expenses.

    I enjoy your blog.

    Regards,

    Petunia

    • Nicole

      @Petunia: I’m already invested in a number of index funds through my 401(k), so that’s why I’m thinking about individual stocks — just one for the time being. It would be a calculated gamble with a relatively small investment ($500). I do enjoy doing my research when it comes to investments, so checking out a company’s balance sheet isn’t too much of a stretch for me.

      And I’m glad you enjoy Rainy-Day Saver.

    • cm

      “you can lose an awful lot of money by choosing individual stocks.”

      Sure, you can, but you can also put stop-loss orders on stocks to limit your loss, and, importantly, you can GAIN an awful lot of money by choosing individual stocks. But yes, it requires patience and work to do it well enough to give you a fighting chance of making it worth your time.

  • I have had an account at ING and at HSBCDirect. I like the convenience of using the internet to handle my money. It is also very easy to use ING for bill paying through my checking account.

  • I use ING but that’s because I opened the account before Ally or SmartyPig even existed.

    There are plenty of articles on the different banks, but one thing to consider is the benefits beyond interest rate. A 0.25% difference is nominal compared to whatever promotional/sign-up bonuses they offer.

    Whatever you decide – make sure to get signed up through one of the Yakezie members. Most are affiliates so you’ll get a bonus and they’ll get a take.

    Best,

  • I use dollar savings direct 1.2% but may consider smart pig now

  • […] This post was mentioned on Twitter by Nicole Canfora Lupo. Nicole Canfora Lupo said: ING Direct, Ally, SmartyPig: Which Online Bank to Use? http://bit.ly/8Z0mMC <~I'm finally going to choose one! […]

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