Dollar Savings Direct has dropped their online interest rate to 3.20% from 3.5%, and I suspect the trend will continue.

Dollar Savings, a spin off from Emigrant Bank much like Emigrant Direct, is still an online leader for interest rates, but for those of us who are trying to maximize the insured return on cash, it is frustrating to watch the interest rate continue to dwindle away.

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I didn’t figure the great rate would last long, but I’m disappointed nonetheless that Dollar Savings Direct has lowered their online savings account interest rate from 4% to 3.5%.

Still a leader in the online savings account game, I can’t be too disappointed; they still beat Emigrant Direct by more than a full point (Emigrant Direct is still sitting at 2.4%), and I pretty much have to pay Bank of America (or is it America’s Bank now?) to hold my money.

I’ll sit and wait for the time being.  My money is FDIC insured, the interest rate is very competitive, and the setup and administration has been trouble free.

Somehow I suspect the rate drops are not done yet, and we’ll continue to see interest rates fall for the next 8 to 12 months.  I hope I’m wrong.

Among the online, high yield savings accounts, there are still a few that pay a respectable rate.

Bank of Internet still has a 3.51% rate with no fees and a $100 minimum deposit.  FDIC insured of course.

Chesapeake Banks Clear Sky Accounts still offers a 3.75% APY, however the interest compounds monthly instead of daily.

Many others are sitting at or below 3%, including HSBC Direct, FNBO Direct, and ING Direct.

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Emigrant Direct has preempted any fed rate cut Bernanke could throw at us. Within the last couple of days, Emigrant bank has cut their online savings rate to 4.55%. Still better than I can get at Bank of America, but it’s making online savings accounts look less appetizing when compared to Canadian Royalty Trusts.

Sure, the money is guaranteed at Emigrant, so it’s still a great place to stash emergency funds, but the dropping rate could offset some of the risk in investing in stocks.

Question for the day: At what percentage rate do you quit stashing free cash in the savings account and contribute it to a online trading account?

The last I checked, RYPQX was still paying just shy of a 5% return.

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