Exploiting ING

By Mat Kelly

I believe I have discovered an interest rate exploit in ING's banking system. As a background, ING Direct offers a high-yield (4.50% APR)(3.00%) savings account, which is liquid (easily accessible without penalty) to the point of the 5-day-or-so excruciating wait for fund transfer.

However, ING has also recently created a variable rate interest bearing checking account that is completely liquid (accessible for free through a widely available network of ATMs.) As all ING checking accounts come standard with $1000 overdraft protection, pulling more cash than is available from one's ING checking account in case of emergency will not create quite the burden (i.e. extra fees) that normal checking accounts serve to their bankers for overdrafting.

The difference in earned interest between the e-savings and e-checking account is where the exploit appears. The interest rate for the checking account is dependent on the balance held; currently 3.0% 1.75% for up to $50,000 balance; 5.05% 3.20% for up to a $100,000 balance and 5.30% 3.40% for a balance greater than $100,000.

The two types of accounts, assuming they are both administered by the same account holder (i.e. the same ING online user), can transfer any amount between them with instant availability, thereby making trivial the 5-day-or-so transfer delay of ING savings accounts.

Aside from needing more than $1000 without having access to a computer for this savings-to-checking transfer, there is no reason to keep a majority of one's balance in the lower interest yielding account. Which account bears the most interest is dependent on one's balance. Based on the figures above, one should keep a majority of his/her funds in an ING savings account if the balance is less than $50,000. Otherwise, one should opt for storing his/her balance in the e-checking, thereby incurring the greater rate.

ING compounds interest monthly. In one year alone, with only a $1000.00 balance, one would earn a mere 0.14% (that's less than one percent) monthly yielding about $1.46 per month from checking and .25% monthly from savings or about $2.50 per month. The difference is about $12.50 per year or about 1.25%, as expected. At larger balances, the 1.25% may seem less trivial. As the FDIC only insures these accounts up to $100,000; keeping a balance about this amount introduces risk to the surplus, however with the proper re-disbursement, one could simply keep an account at a $100,000 balance and continually transfer the $300+ interest to an ING 3.00% yielding savings, which can be created on-the-fly if one were to ever exceed $100,000 in savings.

So, in recap: a safe, completely liquid/accessible savings/checking account can be had with ING direct with up to 3.4% interest and no less than 3.0% unless, of course, the rates change (which they probably will did immediately after this publication).