New online bank with 3.75% APY but there's a catch

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Earlier today I found out about a new entrant to the high yield online savings market on CNN which is offering a savings account with an interest rate of 3.75%. Dollar Savings Direct boasts that this new savings account has America's highest rate* a full quarter of a percent above its nearest competitor. While the new entrant is FDIC insured and not new to the banking industry the new high yield interest rate doesn't come without a catch.

Getting the 3.75% rate isn't difficult but unless you already have some savings built up you can't open an account at Dollar Savings Direct which requires a minimum of $1,000 to open an account. If you have less than $1,000 in the account at any given time, the interest rates drops to 1% APY, which is dismal, especially for an online savings account. I'm not a huge fan of the drop in interest rate but if you have trouble dipping into your savings for non-essentials it may be enough to keep your savings in the bank.

I'm a huge fan of online savings accounts, especially those which pay me well for building up my savings. I currently use HSBC where I was able to open an account with only a dollar and I am currently earning 3.5% APY on the emergency fund we have built up over the past year. The real benefit of a high yield savings account with no minimum deposit is that it isn't a huge challenge to open and combined with direct deposit is an excellent way to start an emergency fund. If it wasn't for HSBC's no minimum savings account I'm positive that our emergency fund would have been squandered on electronics and Taco Bell.

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