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In October 2007 we started work on CI’s Direct Savings Report, our first-ever in-depth look at the direct savings account (DSA) offerings of 11 leading firms. At the time, two firms offered an APY of 5.05% and a few others hovered around 5.00%. Nobody offered anything less than a 4.00% rate.


In retrospect, October 2007 was a heady time for DSAs. Shortly after beginning our project, the Fed made two major rate cuts and savings rates plummeted. Right now, the highest rate of any of our 11 firms is 4.10%, and the average APY has fallen to around 3.50%.


Though interest rates have fallen (and may fall
further still), DSAs remain an attractive savings option for a number
of reasons. First off, even the lowest DSA rate (which currently stands
at 3.00%) is far higher than the rates offered on standard savings
accounts and many money market accounts.


Second, DSAs are liquid. This is especially valuable to people looking to save in uncertain financial times. People can readily access money if unexpected expenses come up. At the same time, people looking to start saving with little or no money aren’t held to the high initial deposit requirements usually associated with CDs and money market accounts. The liquidity of a DSA allows bankers to build savings over time – not have a stockpile of cash already amassed.


Lastly, it’s important to remember that DSA interest rates can go up, too. The fact that they are down right now does not mean they’ll stay this low forever.


Firms should not lose focus on DSAs just because they’ve taken rate hits in recent months. This is still an attractive time to bring in new customers. It’s also a great time to improve (or introduce) your DSA offerings. As our DSA report shows, no one firm has mastered every aspect of the DSA experience. In many cases online applications are still too long and complex, account information is spotty and transfer interfaces are clunky. Firms that improve today will be in a much better position to compete in the future.