You have seen via Google Ads on my or other financial sites advertising 8% CD rates from Millennium Bank. Wow, sounds great! But given the internet age, when you see “bank”, it could be from any corner of the world. The terms “certificate of deposit” or “savings account” may imply security here, but don’t necessarily mean anything internationally. The FDIC website gives some good guidance on Safe Internet Banking:

Read key information about the bank posted on its Web site.
Although it tries to distract you by saying it is owned by some Swiss trust company, if you read further it you find that Millennium Bank is located in the Caribbean nation of St. Vincent and the Grenadines (SVG). So, it’s not even located in the United States. From Wikipedia, St. Vincent has a population of just 119,000, it’s main industry is banana production, and has an unemployment rate of about 22%. Also of interest:

There is […] a small offshore financial sector whose particularly restrictive secrecy laws have caused some international concern.

Does this sound like a place that you would want to keep your money? Maybe if you were trying to hide it! If something goes wrong, do you want to navigate a foreign system to get your money back?

Verify the bank’s insurance status.
This bank isn’t even located in the United States, so there’s no point in even running a bank search to see if it is FDIC insured. It doesn’t even appear to insure its deposits by any private or public agency. If a bank claims to be a subsidiary of a bank that is FDIC-insured, call the parent bank. If they’ve never heard of it, run away.

Gut check: Is it too good to be true?
Finally, risk and return are closely linked in legitimate bank products. If the best any other bank can do is barely 6%, there’s virtually no way a bank offering 8% return with the same level of risk. They have to be doing something riskier, whether it is making some currency bets or investing in lower-quality debt. Given the lack of disclosure of what these risks are, you might as well buy some junk bonds, which are at least rated by reputable independent companies.

Bottom line, I hope you’ll agree there’s absolutely no reason to put your money anywhere near this institution.

For a while now there have been rumors that HSBC planned to enter the online checking account arena, competing with the likes of Capital One 360’s Checking. Instead of using the apparently taboo words “checking account”, HSBC Direct announced today the Online Payment Account, which has the following major features:

• $1 to open, no minimum balances
• Yield of 2.50% APY
• Three non-HSBC ATM fee rebates per calendar month
• Link with unlimited external accounts
• Online Billpay Service
• Can send paper checks via BillPay, but no checkbooks
• Instant transfers to/from HSBC Online Savings account available, but account not required

However, I also got an e-mail from them saying you can’t apply for it until May 31st, and there is no mention of it on their main page. Weird.

My initial impressions? If you use the HSBC Direct savings account already, I’d definitely sign up for this. Why not? You get more features, and there are no minimums. One possible use would be when you needed cash, you could just go to an ATM, move money over from Savings -> OnlinePayment account, and then withdraw to take advantage of the ATM rebates. For people who rarely receive or write paper checks, this could fill a void and allow them to go completely electronic.

But really, how awesome would it be if they just added Billpay and ATM rebates to the Online Savings account, or even better, just made this Payment account pay 5.05% interest?! How hard it is to merge them together instead of adding more complexity?

Personally, I still both write and receive enough paper checks each month to prefer my current Washington Mutual bank setup or even my old Presidential Bank setup over either ING’s or HSBC’s paperless checking accounts.

I opened up a savings account at FNBO Direct originally for their high interest rate and no monthly fees. They are currently offering 0.85% APY as of January 2013, still competitive in this current rate environment. Here are my experiences so far as well as some first impressions of this online savings account:

Legitimacy and FDIC Insurance

FNBO Direct is a division of the First National Bank of Omaha, which is a member of the FDIC. If you call the First National Bank of Omaha, they will confirm this link and the website. For the techie folk, the nameservers and IP address range of FNBO.com and FNBODirect.com are the same. Combined with the fact that this account has been around for months, I see no need to worry about the legitimacy of this bank. Many banks choose to distance their online branches from their existing customers, as they are trying to gain new money and low-cost customers who are comfortable with things like electronic statements and online banking.

Opening Process Overview

The opening process went very smoothly. The CashEdge-based application is similar to that of HSBC Direct, but unlike with HSBC there is nothing to wait for in the mail. Nothing to send in either; No paper needed at all!

The application does include an identity verification test based on information from your credit reports. This is identical to what Washington Mutual does for its online savings account. If you have troubles with this, I recommend checking your credit reports for errors. However, a hard credit pull is not performed so it won’t affect your credit.

You can fund via wire transfer, online transfer, or by mailing a check. Here was my timeline:

• Day 1:Apply online, pass identity verification. Receive e-mail that application was approved. I chose to do an online transfer. Trial verification deposits were sent to funding bank.
• Day 2:Trial deposits received, and verified (free 57 cents!). FNBO Direct initiates funding transfer.
• Day 3: I receive my new account number via e-mail, and enroll for online account access. Initial deposit hasn’t showed up, but should go in on Monday (see below). I can add link additional accounts (max of 3) and initiate other transfers.

Account Features, Transfers and Usability

Features
Overall, your basic Capital One 360 clone – $1 to open, no monthly fee, no minimum balances. Otherwise, it’s pretty barebones. No checks. No ATM rebates. You can request an ATM card, which I did, but since it costs $2.50 for each cash withdrawal, I never plan on using it. Here is their complete fee schedule.

Of course, we all know the best feature is the 6% APY interest rate 😉

Transfers
Again this is the familiar CashEdge interface behind the online fund transfers of banks like Bank of America, Presidential Bank, and HSBC Direct. All transfers are free, and the transfer limits are very generous. The transfer schedule appears to be identical to that of HSBC Direct, and takes three business days. (Worst case: If you initiate on Thursday, money is taken out on Friday, but deposit won’t show up at receiving bank until Tuesday.) I know many people dislike these slow transfers, so you should be aware. Here is a screenshot of the schedule:

Note that your initial deposit will not be available for withdrawal for six business days, probably for security reasons.

Usability
The interface is very simple and utilitarian. I like it. There are only three tabs – View Accounts, Account Services, and Transfer Funds. (Click for a full screenshot of the interface.)

More Information

Customer Service: 877-370-3707, open 24/7.
I’ve called customer service a couple of times, and they do answer and are helpful. Hold times may last a few minutes, but it’s probably due to the recent rush of applicants.

Number of external bank account links allowed: 3

ABA Routing Number: 104000016
I asked them if I could set up third-party transfers like paying my credit card bill with the routing and account numbers, and they said that would be fine. Hopefully it stays that way…

Download formats available: I see no options at all for this. No MS Money, Quicken, or even .csv options.

Interest compounding frequency: Interest is calculated daily and is compounded and credited monthly. Remember, how often interest is compounded really matters very little, especially if you are comparing APYs.

Source: The official website for this online savings account is http://www.fnbodirect.com

With all these new online banks which are pretty much just virtual branches of a lot of regional banks, I thought it would be a good idea to look more into this whole FDIC insurance thing we put so much trust into. First some quick basics, taken from the FDIC website:

What Does the FDIC Insure?
The Federal Deposit Insurance Corporation (FDIC) is a government corporation that insures all deposits at insured banks, including checking and savings accounts, money market deposit accounts, and certificates of deposit (CDs), up to the insurance limit. Use this form to find out if your bank is insured.

How Much Does It Cover?
The basic insurance amount is $100,000 per depositor per insured bank. Certain retirement accounts, such as Individual Retirement Accounts, are insured up to $250,000 per depositor per insured bank.

Way To Increase Your Coverage
Since accounts at different banks are insured separately, the easiest way to increase your coverage is to simply keep less than $100,000 at any one bank. You could have $100,000 each at 500 different banks, and be insured for $50 million in total.

You may also qualify for more than $100,000 in coverage at one insured bank if you own deposit accounts in different ownership categories. For example, here is a way that a husband and wife could qualify for $600,000 in total insurance all at one bank:

What Happens If My Bank Really Fails?
First off, I would note that the FDIC does not notify people that their bank is about to fail or has failed. The only way to you find out is when your debit card gets denied or you walk up to your bank and it has a new name. Here is a list of banks that have failed since October 2000, which includes a summary how it was handled.

The Finance Buff has a good post about what happens when your bank goes out of business. The example given is Metropolitan Savings Bank in Pittsburgh, which the FDIC took over just three months ago.

Here’s the timeline: The FDIC announced the bank’s takeover on Thursday. By Monday the deposits have been taken over by another bank, the branches were re-opened, and the insured people have access to their money again.

But, out of the $12 million in deposits in the bank, there were 30 account holders with total assets of $1.2 million not insured by the FDIC. Those people are now creditors to the receivership of the failed bank, and must wait as the FDIC liquidates the bank’s remaining assets. Waiting on the light fixtures to be sold until you can get any of your money back? Not good.

The takeaways here are

1. Banks still fail, and without warning.
2. If your money is insured, it is unlikely any failure will interrupt access to your funds for long. Either another bank will take over (they all want more deposits), or the FDIC will pay out from their reserves.
3. Never exceed FDIC insurance limits, because you may never see your uninsured money again.

Update: Please see my FNBO Direct Review for more info!

Rate chasers rejoice! Look likes with the expiration of the HSBC Direct 6% APY promotion yesterday, the online bank FNBO Direct has decided to offer the rate of 0.85% APY as of January, 2013. $1 to open, no monthly minimums, no credit check, previous rate was 5.25% I believe. Anybody use this bank before?

As usual, check out my Ultimate Rate Chaser Calculator to see the potential profit from a move after accounting for transfer time. I hope they don’t pull what Umbrella Bank did – change their guaranteed date from 12/31 to 7/31 a day into the promotion. Thanks Steve for the tip.

If you’re comparing checking accounts, what are the features that one should consider? It’s not all about the interest rate. In no particular order, I would want:

Low minimum balance requirement – This helps include more people, and there is less stress about low-balance or maintenance fees.

Consistently high interest rate – I would think that a history of competitive rates and also the ability to keep those rates high yet still be profitable is important. I would guess that this means either restricting the accounts to people comfortable with the internet and thus less likely to need too much hand-holding or human interaction, or having a strong mortgage division.

Easy to make withdrawals – This could mean a large ATM branch network or automatic ATM fee rebates. Free wire transfers and money orders would also be a plus.

Easy to make deposits – Depending on your preference and how often you need checks, here you would need either local ATMs, postage-paid deposit envelopes, or even the new system at a few banks where you can simply scan in your check deposits from home.

Easy to transfer money between banks – This means being able to initiate transfers to other bank accounts through your account with only the routing number and account number. Also, this means being able to access your account by third parties in the same way. On the other hand, maybe some people like this to be restricted for security reasons?

Online interface – Being able to see your account balances clearly at a glance, dependable online BillPay, and a good balance between security and accessibility. Don’t require my passwords to be 18 characters long and a retina scan to log in.

Customer Service – Even though I don’t call in very often, being able to reach a knowledgeable and helpful human when needed in is very important to me. A good online messaging systems is also good for creating a paper trail.

The Rest – Some other things that come to mind are free checks, low or no overdraft fees, overdraft protection, free notary services, extended branch hours, drive-up ATMs, Quicken or MS Money synchronization, return of canceled checks, and free candy at the teller windows 🙂

I feel like I’m still missing something…