It’s hard for me to write decisive titles, they’re so usefully dramatic and I feel so worried about dramatic liberties. So let’s add all kinds of conditional clauses. I love Electric Orange accounts, for example, and I’m glad that I have one. I even feel fine recommending them to others (in fact, this crossed my mind when I was updating the referral links). So why are they a bad idea?

Well, the Electric Orange Checking Account works like this. You earn:

1.75% APY on balances up to $50,000
3.20% APY on the entire balance if it’s between $50,000 and $100,000
3.40% APY on the entire balance if it’s $100,000 or more

I’m all about earning 1.75% APY on my checking account. I like that it’s easy to transfer money between the checking and the savings (which earns 3%), so I can keep most of it in savings.

However, to earn good interest on the account, you need a balance of $50,000 or more. Wait, back up. What’s $50,000 doing in a checking account? Sure, in this case the checking account is earning more than the savings account, but ING offers a number of CDs which have even better interest—locked in. Or you could invest the money, which should bring you even better earnings in the long term.

And the best balance is on accounts with $100,000 or more. Hang on, what about FDIC insurance?

My guess and hope is that ING created these accounts to encourage people to use their checking. The 1.75% is quite enough for me. But to sweeten the pot, they threw in high-interest earnings on the few balances that went over $50,000. Making it look like we could earn great interest on our checking account just makes the account more appealing.

But if you had $50,000, wouldn’t you probably put that in a CD or an even higher-earning investment?

So, actually, I think ING’s Electric Orange Accounts are a great idea. They’re easy-to-use and earn good interest for checking. But I also think that holding $50,000 in them just to get the interest is a pretty bad idea.


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{ 8 comments… read them below or add one }

Frugal Vet Tech September 4, 2008 at 11:44 am

Offering a higher interest rate on high checking account balances doesn’t make the accounts bad or a bad idea. IMO, *storing* that much money in a checking account isn’t a smart idea, but the account itself is still okay. As you mentioned, there are better options for storing such high amounts of money.

Seeing you can potentially get that high of an interest rate on your checking account makes the account look more appealing though – “Wow, look, when we get more money we can be earning X amount of interest on it!”

PK September 4, 2008 at 11:50 am

You’re title scared me for a second!

I look at the higher interest tiers of the ING EO account as a bonus for those swing times when I’m moving money arround.

Caro September 4, 2008 at 12:15 pm

I have always thought these sorts of accounts are for folks who write large checks on a semi-regular basis. Say they have a business and regularly write a check for 50K. While they are waiting for the check to clear and it *has* to be in their checking account, at least they make some money!

MoneyBeagle September 4, 2008 at 12:31 pm

Thanks for the post. I like the insight. I’ve been looking at opening an ING account, and have been doing my homework to ensure I get the best. I’m leaning towards the Orange Savings account anyways, but this will definitely be information I’ll use to factor into the decision.

Keep up the great posts!

mrsmicah September 4, 2008 at 2:44 pm

@Frugal Vet Tech, I know…nothing wrong with the account itself.

@PK, Sorry to scare you. The title popped into my head and I had to go with it. As you say, if you’re moving large amounts of money around, it might be worth it to use EO as a holding account. For under $50,000, Orange Savings is probably the best holding place.

@Caro, those people would certainly be wise to use such a checking account. At that level, distributing savings/checking among banks is something that has to be carefully managed to get the best FDIC protection. Come to think of it, I’m not sure FDIC protection extends to corporations…

@MoneyBeagle, I’m very pleased with my Orange Savings account. And I like having the checking account connected so I can move money about easily. I also have free checking at Wachovia that earns much less interest, but that’s handier for writing actual checks. (ING EO does that too, but you have to get them mailed ahead of time.)

fivecentnickel.com September 6, 2008 at 11:07 pm

Keep in mind that FDIC limits are higher ($200k) for joint accounts, so it’s not like you have to exceed FDIC coverage to get the $100k+ rate.

mrsmicah September 14, 2008 at 10:07 am

@FCN, excellent point. It’s still probably wiser to invest the money, even in a CD, unless you’re planning to use it right away. But if it was a joint account, one could go over the $100k mark without losing FDIC coverage.

Diane March 18, 2009 at 11:59 am

I have an excellent reason to open an ING checking account~!

I have an ING Savings account, and I’m planning to open an Orange Checking account for 1 reason – to have faster access to my money if I need it.

I will keep the majority of the money in the savings where interest is higher, but if needed I can move money directly to the Orange Checking and use the debit card to access cash or make a purchase.

This will allow me to feel more secure leaving the majority of my emergency fund in savings, knowing I can get to it if need be. It takes several days for money to move from ING savings to my basic checking account.

I had the experience in 2005 (pre-ING accounts for me) of evacuating for 2 weeks for Hurricane Katrina. My local bank did not have a branch in Dallas, Tx. I like knowing that I can access my money any place, any time I need to!

I wish ING Orange Checking accounts were still paying this rate… it’s more than the ING Savings is paying now. At this point ING Orange Checking pays .49% last I checked.

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