. . .when its earned in the Washington Mutual Savings for Success Account. This is another case of if it’s too good to be true it is.
I was walking by a Washington Mutual Branch (WAMU) today and I saw a sign for a 7.01% APY in BIG LETTERS. I went in and with a little prodding was able to get all of the rules for the account in writing.
Here’ the deal: You can open the account with anywhere between $1 and $500, and then you are required to deposit $25-$500 per month from a WAMU checking account (no interest there!). If you withdraw your funds early you get hit with a 6 month interest charge. This is beginning to sound like a convoluted CD.
Here’s where it gets really bad: I calculated two strategies to see what your actual interest rate would be assuming you kept any un-deposited money in a WAMU checking account earning no interest. If you put in $500 every month, the maximum allowed, your actual return would be only 3.9%. This is less than what ING (www.ingdirect.com) or Emigrant (www.emigrant-direct.com ) pay. The reason: You only earn the full 7% on the first months deposit, on the second month’s deposit you earn 6.43% (11/12ths of 7.01), on the third month 5.84% (10/12ths of 7.01), and on the last month’s deposit only a paltry 0.58% since it was sitting in the checking account earning no interest for 11 months.
You could earn a higher overall interest rate by making a $500 deposit for the first two months and then only $25 per month in months 3-12. This would yield an interest rate of 6.2% since your deposits are front loaded. If you really wanted to game the system, you could theoretically transfer money from a high-yield savings account to a WAMU checking account and then to the Savings for Success account on a just-in-time basis. However, that seems like a lot of hoops to jump through just to get a few extra dollars of interest. Plus if you goof up you get stung with that 6 months of lost interest.
WAMU does offer an online savings account but the terms and interest are not competitive with the best competitors. I don’t think that the current offering changes anything.
PS. You won’t find anything online about this account. I had to ask at the branch for information.