The HSBC Direct 6.00% APY Promotion

Please note: HSBC Direct Savings account 6.00% APY is currently expired.

If you haven’t heard the news, HSBC Direct is running a promotion from January 29 to April 30, 2007. During that promotion, all new deposits earn 6.00% APY through April 30, 2007. Naturally, given my curious self, I couldn’t help but wonder how good of a deal this is, so I used a pretty standard situation as a model to estimate how much that’s actually worth to an investor.

Let’s say that on January 29, 2007, Bill opens an account with HSBC Direct and deposits \$100 in it. Bill wants to build an emergency fund, so he schedules a \$100 deposit each week. I’m also going to simplify HSBC’s method of making interest payments just a bit, and say that they deposit all of the interest from the previous month into the account on the 22nd of each month, which is roughly accurate.

On May 1, Bill wakes up and checks his account. With the old rate of 5.05% APY, Bill would have earned \$8.87 in interest over the period. With the new introductory rate, Bill earns \$10.53 over the period, meaning the introductory rate earns Bill an extra \$1.66 in interest. That’s not bad, considering the relatively small amounts that Bill’s working with.

However, the best way to leverage this feature is to deposit a large amount into the account. Let’s say Jill deposits \$50,000 into her HSBC account next Monday morning, February 5. She heard about the interest rate and wants to capitalize on it. On May 1, Jill checks her balance. With the old 5.05% APY, Jill earned \$576.38 on her money, but with the introductory 6.00% APY, she earned \$684.45 in interest, a difference of \$108.08.

What’s the drawback? There are two big drawbacks with this offer: it only affects new deposits (meaning that money already in your HSBC account gets the old 5.05% APY – and by new they mean anything over your balance on January 29, so a withdrawal and redeposit won’t help) and it ends on April 30. For me, it’s not enough to make HSBC my primary savings account for my emergency fund, but as a person who uses HSBC for a small savings fund, I quite like the extra money.

However, if you’ve never tried out an online savings account before, this is the most lucrative offer I’ve heard of, and it’s from one of the leaders in the field, backed by the FDIC and by one of the largest banks around.